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Tata Capital > Blog > Wealth Services > Multi-Asset Allocation Funds – Should I Invest in It When the Equity Markets Are at its All-Time High?

Wealth Services

Multi-Asset Allocation Funds – Should I Invest in It When the Equity Markets Are at its All-Time High?

Multi-Asset Allocation Funds – Should I Invest in It When the Equity Markets Are at its All-Time High?

Investing in the stock market is nothing short of a roller coaster ride. It comes with its fair share of highs and lows, on account of market volatility, geopolitical uncertainties, slow economic growth, or changing monetary policies.

Safe to say, when the equity market is fluctuating, investing in multiple asset classes is an excellent move for your portfolio. Multi-asset allocation funds invest a minimum of 10% in at least 3 asset classes like equity, debt, and commodities. 

These funds not only offer opportunities for diversification but aim at minimising the risk associated with investing in a single asset class. But should you invest in these funds when the market is at an all-time high? 

Let’s find out.

What happens when the equity markets are its an all-time high?

When the equity market is at a high, it means that the stock market is trading at a significantly higher level than historical averages. This situation is often characterised by strong bullish trends, with many stocks experiencing increased valuations.

Stock prices are relatively high compared to historical price-to-earnings (P/E) ratios or other valuations and investors may even be willing to pay a premium for stocks, anticipating future growth. However, while markets are at a high, there is an increased risk of volatility – market corrections or pullbacks become more likely as investors may start to take profits or reassess their risk exposure.

In such a situation, multi-asset allocation funds provide the diversification and security you need with your investments.

Why consider these funds when equities are sky-high?

1. Diversification is key

When equity markets are at a high, there is also the risk of volatility. This is where the diversification offered by Multi-Asset Allocation Funds becomes crucial. A diversified portfolio is less vulnerable to the impact of a potential downward trend than a single asset class. By investing across different asset classes like stocks, bonds, commodities and alternative investments, these funds aim to mitigate the risk associated with a market correction.

2. Professional management

Let’s face it – not everyone has the expertise to constantly monitor and rebalance their portfolio in response to market movements. Fund managers of multi-asset allocation funds do this for you, aiming to optimise returns and reduce risks.

3. Gold investments

Often, when the equity market is volatile, investors turn to gold as a 'safe-haven'. Multi-Asset Allocation Funds often also invest a portion in gold funds, which can act as a hedge against market volatility.

4. Stability

The debt component in these funds provides much-needed stability to your investment portfolio. When equity markets are unpredictable, fixed-income assets can offer a cushion, albeit with generally lower returns.

5. Portfolio rebalancing

Periodically rebalancing your portfolio ensures that your asset allocation aligns with your risk tolerance and financial goals. Multi-asset allocation funds feature automatic portfolio rebalancing that helps investors realign their investment for maximum stability and returns.

Things to consider before investing

Risk appetite

Your investment decision should align with your risk tolerance. If the idea of market fluctuations affects your investment choices, a Multi-Asset Allocation Fund could be a suitable choice.

Investment horizon

These funds generally work best as a medium to long-term investment. Consider your investment horizon and financial goals before investing.

Taxation

It must be noted that not all multi asset allocation funds are taxed the same. Equity oriented multi asset funds and debt oriented multi asset funds have different criteria when it comes to calculating short term capital gains and long term capital gains. Hence, it is better to check the taxation structure of the multi asset fund before investing.

In conclusion

Investing in multi-asset allocation funds when the equity markets are at an all-time high can be strategic for those seeking diversification and a balanced investment approach. However, it's important to align this decision with your individual risk tolerance, goals, and investment horizon.

Want to start your mutual fund journey but not sure where to begin? Turn to Tata Capital Wealth. Our financial experts can help you pick the right instruments, tailor your investment to suit your risk appetite and manage investments effectively.

To grow your wealth through expert financial advice, visit our website today.

Manage your wealth with Tata Capital
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