Multi-asset funds: Separating hype from reality

In a year marked by events rattling the world, Indian investors have showcased a notable appetite for financial growth. Over a crore of people embarked on a new SIP journey this year. In fact, 2023 can potentially witness the highest-ever SIP contributions if the current trend persists for the remaining three months. That being said, a deeper dive into investors' preferences paints an exciting picture. It's not the conventional equity funds, such as flexi-caps or large-caps, that have captured the interest. Instead, it's the funds venturing into the uncharted territories of mid-cap and small-cap stocks that have attracted substantial inflows this year. Interestingly, the category which is giving even these high-flying choices a run for their money is the enigmatic multi-asset allocation funds. Supported by a healthy pipeline of new fund offers (NFOs), active funds in this category have seen an impressive inflow of around Rs 15,000 crore so far. In fact, only mid-cap, small-cap, sectoral funds, and arbitrage funds have managed to surpass this figure across all equity and hybrid funds. As for our subscribers, we endeavour to be your trusted investment guide, and our mission extends beyond just suggesting where to invest. It also encompasses steering you away from potential pitfalls. However, some of the funds that find themselves on our 'Avoidable' list evoke considerable investor interest. These categories often lie beyond our usual coverage and merit us to explore, dissect, and evaluate their suitability for any investor need. So, in this story, let's put the multi-asset allocation funds under the microscope. What are multi-asset funds? Multi-asset funds invest in at least three asset classes with a minimum 10 per cent allocation in each. By mandate, foreign securities are not treated as a separate asset class here. This category currently manages assets worth Rs 70,000 crore across 31 funds. However, all of these assets (or AUM) are managed by nearly half of the funds, effectively. And even within this set, two ICICI Prudential funds occupy 60 per cent share together! Where do these funds invest? The charm of bundling three asset classes into a single, convenient package is what truly captivates investors, making multi-asset funds an attractive choice. However, if you scratch the surface of this enticing promise, you would discover that these funds are more complex than they seem. Beyond equity and debt, gold is the only asset class where multi-asset funds have some meaningful exposure. When it comes t