Despite the recent rally in the equity market, key indices are yet to scale the levels touched in October 2021. Gold prices have rallied strongly over the past year or so, thriving in the volatile macroeconomic environment, as inflation and high interest rates hurt growth and equity markets around the world. Meanwhile, after massive increases in interest rates, resulting in a mixed run for bonds, central banks may finally be hitting the pause button on further hikes.

As a retail investor, navigating in and out of various asset classes to get the best returns from each avenue by timing your moves becomes extremely challenging.

For optimal risk-adjusted returns over the long term, asset allocation becomes important for investors of all hues.

For retail investors with a moderate risk appetite, multi-asset funds, which invest in a blend of equity, debt, and gold, could be well-suited investment avenues.

In this regard, HDFC Multi Asset Fund may be a good choice for investors given its steady performance over the years.

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Why a multi-asset approach helps

Investing in a diversified portfolio helps reduce risks. But diversification works best when the constituents of a portfolio do not move in tandem and are dictated by different dynamics.

Equity, debt and gold move based on various factors and thrive in different type of market conditions. These three asset classes have very little correlation to each other’s moves across timelines.

Over 10-20-year periods, equity-debt, gold-debt and equity-gold have negative or very low correlation coefficients. Thus, a diversified portfolio with all three asset classes in appropriate ratios based on individual risk appetites would lower risks.

In a multi-asset fund, the allocation to equity, debt and gold is based on market conditions and therefore such a scheme makes it easier for investors, especially fresh entrants, to deal with market gyrations.

Equity is generally the mainstay of a portfolio as generates strong returns over the long term and helps reach most financial goals.

Debt is for generating regular income and is expected to provide steady low-risk returns.

Gold acts as an inflation hedge, though it has also beaten equities in many years, and insulates a portfolio during volatile markets.

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HDFC Multi Asset Fund scores

Among the multi-asset funds, investors with a moderate risk appetite can consider HDFC Multi Asset Fund. The scheme is not a chart-topper, but has been a steady performer across market cycles and has beaten inflation convincingly over the long term.

When three-year rolling periods over the 10-year timeframe May 2013- May 2023 are taken, HDFC Multi Asset Fund has delivered 10.6 per cent returns compounded annually, on average. A systematic investment plan (SIP) in the scheme made over a 10-year period would have delivered 11.52 per cent returns. according to data from Valueresearch.

This performance places it above SBI Multi Asset Allocation and UTI Multi Asset funds in terms of returns delivered over the above period.

HDFC Multi Asset Fund has delivered three-year rolling returns of more than 10 per cent half the time over the last 10 years. Over the same timeframe, the scheme has delivered more than 8 per cent over 70 per cent of the time. The fund has almost never given negative returns over three-year rolling periods.

The scheme maintains a fairly consistent asset allocation pattern across most market cycles. Usually, 65-67 per cent of the portfolio is invested in equities. Exposure is generally restricted to large-cap stocks and therefore investors get to invest in a fairly moderate risk stock portfolio. The fund also takes the arbitrage route to hedge the equity portion of the portfolio.

Around 11-13 per cent of the portfolio is reserved for gold. Exposure is taken via the HDFC Gold ETF (exchange traded fund) route.

Debt and cash take up much of the remaining portfolio, though at times REITs (real estate investment trusts) have found their way into the fund’s holdings via minor exposures.

The bond investments are predominantly in government securities and AAA-rated instruments, thus avoiding any scope for credit risks.

Overall, investors with a moderate risk appetite can consider investing in the fund as a diversifier via the SIP route with a time horizon of at least five years.

Why buy
Almost zero negative returns over 3-yr rolling periods
Bond investments mostly in G-Secs and AAA-rated instruments
Fairly consistent asset allocation pattern across most market cycles