What are multi-asset or balanced funds? | Vanguard (2024)

FAQs

What is a balanced multi-asset fund? ›

The strategy of investing in different asset classes and among the securities of many issuers in an attempt to lower overall investment risk.

How a multi-asset fund works. As the name suggests, a multi-asset fund invests in a variety of asset classes. While some funds may, for example, only invest in shares or bonds, a multi-asset fund will typically hold both of these, as well as property, cash and potentially even alternative assets, such as gold.

A balanced fund is a mutual fund that typically contains a component of stocks and bonds. A mutual fund is a basket of securities in which investors can purchase. Typically, balanced funds stick to a fixed asset allocation of stocks and bonds, such as 70% stocks and 30% bonds.

A multi-asset class is an investment approach that combines asset classes, such as cash, equities, or fixed income.

Approach to asset allocation: Multi-asset allocation funds seek to maintain allocation to different asset classes within a specified range. Balanced advantage funds dynamically adjust their allocation based on market conditions from time to time.

Investors seeking long-term capital appreciation, while avoiding concentration of their investment holdings in a single category and minimizing exposure to unwarranted risks and ongoing volatility, may find multi-asset allocation funds worth considering.

Multi-asset allocation funds have been pitched as a less volatile option compared to their aggressive hybrid equity counterparts, offering indexation benefits if the equity allocation lies between 35 to 65%.

Multi-asset class investments increase the diversification of an overall portfolio by distributing investments throughout several classes. This reduces risk (volatility) compared to holding one class of assets, but might also hinder potential returns.

Multi-Asset funds have investments in three or more categories of asset classes and in each of them at least 10% investment. This is SEBI's classification. So, at any point in time, the investor may not know where his entire funds are invested and if this is the core part of the portfolio.

Boring balanced funds tend to be cheaper than highly specialized ones, so they're a good core investment. Even better, because allocation funds reduce volatility through diversification, investors tend to hold on to them.

What is an example of a balanced portfolio? ›

For example, a balanced portfolio might consist of 25% dividend-paying blue-chip stocks, 25% small-capitalization stocks, 25% AAA-rated government bonds, and 25% investment-grade corporate bonds.

An investor with a medium risk-taking appetite should go for balanced funds. Balanced funds offer a much better return on investment compared to any other hybrid fund like a conservative hybrid fund, or aggressive hybrid fund, etc.

Multi-asset allocation funds provide investors with a single investment that combines debt, equities, and one additional asset class such as real estate, gold, and so on. Furthermore, these schemes employ various asset allocation algorithms that are designed to respond to changing market situations.

Multi asset portfolios often focus on delivering predefined outcomes for clients, which could be in the form of total returns or stable income streams. As the name would suggest, they do this by investing in a range of different asset classes - including equities, bonds, cash and alternatives.

“There are a lot of really good [balanced] funds out there,” says Jason Kephart, Morningstar's director of multi-asset fund ratings. “The interest-rate environment makes the funds' fixed-income portfolio a lot more attractive than it has been in the past.”

Balanced funds smooth returns by adding bonds to a portfolio of stocks, and this approach may help reduce the chances that new investors will panic and sell their investments in a downturn, hurting their long-term returns.