With the markets touching a new high every other day, asset allocation funds make a very attractive bet for investors as these funds rebalance their allocation depending on the prevailing market condition.
“As the market is expensive right now and there is no respite to that fact, I believe investing in asset allocation funds is an attractive investment option at this point. Investors who are looking to invest lumpsum amount instead of SIP can invest in these funds. When the market corrects from the current level, these funds would increase their allocation to equities and hence have a potential to give higher returns as the market goes up,” says Gautam Sinha Roy, Equity Fund Manager at Motilal Oswal Mutual Fund.
Seconding Gautam’s view, Mumbai-based IFA Karthik Jhaveri of Transcend Consulting says, “The asset allocation is left to the algorithms and fund managers. Hence, risk averse investors can comfortably invest in these funds,” says Karthik. He, however, suggests that as the churning of these funds takes place on a regular basis, investors should invest in these funds with a time horizon of at least three years.
Rajat K Jain, CIO, Principal Mutual Fund says that investors can get dual advantage of diversified portfolio and tax benefits through asset allocation funds.
However, a few advisors have a different view on asset allocation funds. They say that investors should not blindly invest in asset allocation just because markets are at a peak. Asset allocation funds should not be considered as a special type of fund. Investors can invest in these funds like hybrid funds.
(Investing in asset allocation should be as any other equity or debt fund i.e. based on risk profile and time horizon of investors, they say.)
"In asset allocation funds, there is a lot of leeway for fund managers to increase exposure to debt, which can affect long term performance. I prefer recommending balanced funds if investors want to invest in both equity and debt simply because balanced funds can generate higher returns," says Bangalore-based Srikanth Matrubai, CEO, Srikavi Wealth.
He further mentions that long term investors should not worry about the market vagaries and should invest in pure equity funds like diversified, multi-cap or large cap funds depending on their risk tolerance.