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Mutual Fund is the best Route to Invest in Multiple Asset Classes

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This explains why asset allocation funds are best suited to help you create wealth in the long term by taking exposure to gold, equity and debt

Gold has lost some of its glitter lately. The price of the metal in rupee term is down 10% in the last six months. Strangely, investors have poured in money into gold and various products with allocation to gold during the same period. Money managed by gold ETFs has grown to . 12,057 crore on January 31, 2013, from . 9,614 crore on January 31, 2012.
However, this doesn't capture the whole story. Investors have also put their money in mutual fund schemes with exposure to gold in a big way. Riding on the gold prices in the past few years, some of these products were launched as recently as the second half of 2012, and investors have responded positively to them. The largest among them -- Axis Triple Advantage Fund-- manages an average monthly AUM of . 884 crore. And these schemes are disparate: there are monthly income plans (MIP) investing in gold along with debt and equity; debt funds with some allocation to gold; and some multi asset funds investing in varying mix of gold, equity and debt. According to investment experts, investors are gradually moving towards these funds because of the ability of these schemes to contain the downside risk in volatile markets. Gold-based MIP and asset allocation funds have gained assets in last couple of years. Axis Triple Advantage Fund and Taurus MIP Advantage have seen prominent increase in their asset base. With diverse mandates, risk and reward associated with each of these products changes, and that makes the choice tougher for investors. Limited performance history is another handicap. Investment objective and asset allocation of the scheme is an important factor and it should match the investor's financial goal.


If you are a conservative investor, you can consider MIP products with allocation to gold. If you are a growth-oriented long-term investor, consider asset allocation funds with exposure to gold.


To begin with, take a closer look at these schemes. The first sub-segment includes monthly income plans or MIPs investing in debt, equity and gold. A word of caution before proceeding: these products will have portfolios that would generate some distributable surplus at regular intervals, say, monthly; but don't bank on it as they are not guaranteed. Most of the money (around 65%) is invested in debt and the rest is invested in equity and gold exchange traded funds.


These products are conservative and are suitable for investors with low risk appetite. These schemes are expected to cater to the income needs of an investor. Religare MIP Plus and Taurus MIP Advantage are the schemes in this segment. Second sub-segment includes hybrid funds where the scheme invests in debt and also has an exposure to gold. Debt allocation is pegged at minimum 65% of the assets. Canara Robeco Indigo and BNP Paribas Income and Gold are the schemes in this segment. The purpose of these funds is to earn regular income from debt investments and investments in gold exchange traded funds. The third sub-segment includes funds that invest in multiple asset classes. The difference between these funds and the monthly income plans is the asset allocation. A monthly income plan is a debt heavy product by default. But the multi-asset fund allows the fund manager relatively more allocation to equities and gold. In some cases, the fund managers can invest up to 65% of the money in equities. Mutual funds such as IDFC, Morgan Stanley, Axis and Quantum have launched products in this segment.

 

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