Stock market chaos: Should you invest in MAAFs now?

Many of us invest in Mutual Funds, especially through SIPs every month. However, if you have checked your portfolio recently, you would know that in the last one year the returns have mostly been in the negative or in lower single digits.

Now, what if I told you there's one type of mutual fund which has done better than your regular equity funds which invest only in stocks? I am talking about Multi-Asset Allocation Fund or MAAF.

Assets under MAAF

As the name suggests, these funds invest in at least three different asset classes with a minimum of 10% in each, as per the requirements set by market regulator SEBI. MAAFs typically invest in Indian stocks, debt instruments such as government or corporate bonds, and precious metals such as gold or silver. Some of these funds also invest in real estate through Real Estate Investment Trusts (REITs) and in international stocks.

MAAFs beat pure equity MFs

Now, in the last one year these funds have done better than pure equity funds, with the top performer WhiteOak Capital MAAF delivering almost 16 per cent return year on year. The key reason behind these funds doing better than pure equity funds is the fact that they have investments across different asset classes.

So, even as the equity component of these funds has not given good returns, returns on debt have been largely stable. Also, precious metals have rallied to new highs, fuelled by chaos across the global economy. That has added a lot to the returns generated by MAAFs.

MAAFs: The diversification edge

And that’s the key advantage these funds have – diversification. Due to investments across asset classes, MAAFs are less volatile even when stock markets turn choppy. This also means lower risk and stable returns....and the disadvantage

But the same advantage also turns into a disadvantage for MAAFs versus pure equity funds when stock markets are rallying. Because your investment is spread across asset classes, there’s only a limited amount of benefit these funds could draw from a surge in equities.

Should you invest in MAAFs?

So, then who should invest in this mutual fund instrument? This option is for you if you are a beginner who wants diversification without managing multiple investments. It's also for those who want moderate risk, balanced growth with controlled volatility.

However, if you are a young investor with a long time horizon and have a solid risk appetite, or if you are generally a high-risk seeker and want maximum growth, then pure equity funds are a better option for you.