Investors’ decision to slowly ramp up their investment in multi-asset mutual fund schemes has paid off well with the asset under management increasing 76 per cent to ₹48,635 crore in November from ₹27,740 crore.

With a relentless rally in the equity market and concerns about market valuations getting louder, most financial advisors are recommending investors to park their money in multi-asset schemes, which provide the much-needed diversification.

The inflow into the multi-asset schemes has slowly risen from ₹445 crore in April to ₹2,589 crore last month. The inflows hit a high of ₹6,324 crore in September with three new fund offers of DSP MF, Kotak MF and Shriram MF collecting ₹4,791 crore.

Diversification across asset classes is of utmost importance to beat hectic market volatility as each asset class follows their own cycles and their rise and fall are never easy to predict.

Market regulator SEBI mandates hybrid multi-asset funds to invest a minimum of 10 per cent of their corpus in a minimum of three asset classes. It could be a mix of equities (domestic and international), debt, and commodities. For any investment diversification to work well, fund managers need to have substantial allocation in all constituents of asset classes and maintain it irrespective of market volatilities.

Dwaipayan Bose, co-founder, Advisor Khoj said investors should not fall prey to the “flavour of the season asset class” syndrome in their investment decisions and, instead follow a balanced asset allocation strategy for their portfolio and the multi-asset mutual funds fit the bill the best.

To get the best returns from each asset class, the selected fund should be true to the label and fund managers should not tweak the asset allocation mix.

For instance, he said Nippon India Multi Asset Fund has set asset allocation mix of 50:20:15:15 across domestic equity, overseas equity, commodities and debt and has never changed it.

It invests across four asset classes and 20 per cent of the corpus in international equity. Other multi asset funds of Sundaram MF, Invesco MF and Axis MF also invest in global markets, he said.

Multi asset funds also bring in indexation benefits as the value of investment is calculated keeping factors such as inflation in mind, he said.

In the last one year, Nippon India Multi Asset Fund has given a return of 16 per cent, Motilal Oswal and HDFC MF have delivered a 14 per cent return each while the Tata Multi Asset Fund clocked in a return of 13 per cent.