‘Magic formula’ worked in market crash: When gold and stock markets failed, multi asset allocation funds gave bumper returns of up to 20%

The last six months have been extremely turbulent for global and Indian investors. First there was a recession in the domestic equity market and then due to the US-Iran war, the global stock markets collapsed. Usually, when the stock market falls, investors rush towards gold and silver for safe investment because there is an inverse relationship between these two asset classes. But this time history did not repeat itself. Gold prices have fallen by about 20% and silver by 43% in the last 6 months due to strong dollar and strong signals of US Federal Reserve (US Fed) not reducing interest rates. On the other hand, due to the pressure of war, Sensex has fallen by 11% and Nifty by 8.6%. When both these main sources of earning were closed, a special category of mutual funds, ‘Multi-Asset Allocation Fund’, emerged as a solution for investors and generated huge profits.

SEBI rules and complete mathematics of investment

As per the stringent rules of market regulator SEBI, it is mandatory for multi asset allocation funds to maintain a minimum allocation of 10% in each of at least three different asset classes. These are three main means:

• Equity: Investing in stock market.

• Debt: Fixed Income and Government Securities.

• Commodity: Gold, Silver or Real Estate (REITs).

Since the performance of each asset class is different at different times, this fund automatically balances your risk and return.

These top funds gave annual returns of up to 20% in the last 3 years

The funds handling the largest assets under management (AUM) in this category have also outperformed equity mutual funds. The performance table for the last 3 years is given below:

Freedom from the hassle of changing portfolio frequently

The biggest practical advantage of multi-asset funds is that investors themselves do not have to rebalance (change) their portfolio again and again after seeing the market movements. Fund managers themselves shift the money to the right place keeping in mind the ups and downs of the market. This prevents investors’ money from getting stuck only in those assets which were doing well earlier but are now in recession. This fund also provides timely entry into those assets which are not liked by the market at present, but which can give bumper returns in future.

Opinion of market experts: This is the best time for portfolio diversification

Financial experts and market experts clearly believe that if you want to protect your investments in the current global recession and war situation, then this is the best and right time to diversify your portfolio. Multi-asset funds greatly reduce the risk as the debt (fixed income) portion of your portfolio protects your portfolio from sharp declines when both equities and commodities are going down. This hybrid model is proving to be the best option for people looking for new and safe investments.