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Why did your multi asset funds fail to benefit from upside in gold?

Multi asset allocation funds are marketed as a one-stop solution to investors looking to have a diversified and balanced portfolio. These schemes typically have a mixed portfolio – usually in equity, debt, and gold. However, investors are worried that these schemes haven’t offered great returns on the back of soaring gold prices.

They are right. Multi Asset Funds have offered 0.49% returns in the last year. Why did they fail to capture the upside in gold prices?

Here is the answer. According to Sebi categorisation, multi asset funds invest in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes. Even though, there is no upper limit, most schemes seem to be investing less than 30% of their corpus in gold. A look at the portfolios of the top 10 MAFs reveal that schemes have a general allocation of 9-28% to gold in the portfolios.

Scheme nameAllocation to goldOne-year returns
SBI Multi Asset Allocation17.9%9.14%
ABSL Fin Planning FOF9%6.64%
Quantum Multi Asset FOF15%5.57%
Axis Triple Advantage10.9%5.18%
HDFC Multi Asset16%3.66%

Fund managers say that investors should stop looking at multi asset funds as an alternative to a particular asset class and start looking at them as a ‘solution’.“Investors should understand that multi asset funds are not an alternative for gold. It is a solution. If you don’t want to juggle among asset classes and want the fund manager to do that for you, it is beneficial. You have fixed income to provide safety, equity to provide wealth creation and gold as a hedge. If you are looking at long term returns from gold or you have goals related to gold, then you should consider gold funds,” says Chirag Mehta, fund manager, alternative investments, Quantum Mutual Fund.

According to fund managers, the idea of multi asset allocation funds is to protect capital relative to the market at all points in time by being present across all asset classes. “The objective is to stay invested across various asset classes such that capital is protected relative to the market. The aim is to generate absolute returns over a longer period. Given the construct of these funds, it would be prudent to gauge their performance across a complete market cycle,” says S Naren, ED & CIO, ICICI Prudential AMC.

Chirag Mehta says that as a rule they have a maximum allocation of 15% to gold and that’s what they preach to investors. “We ask investors to invest only 10-15% of their portfolio in gold and historically that has worked in our favour. In long terms, more than 15% gold allocation has been counterproductive and that’s why we have set a bar,” Mehta says.

Gold has the tendency to remain range-bound for a long time, say fund managers. That is why gold should be looked more as asset allocation rather than driver of return in a portfolio. Financial planners believe that at this point wanting more allocation to gold is like chasing past returns. “Multi asset funds are more like conservative balanced funds. The fund may have allocation towards gold and fund managers will decide the weightage in gold as per their views on the prospects of gold. If investing in gold is the objective then it is better to invest in gold funds instead of multi asset funds,” says Harshad Chetanwala, CFP, Co-founder, My Wealth Growth, a financial planning firm based in Mumbai.

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