Multi-asset allocation funds spread your portfolio in a variety of asset classes like stocks, bonds and commodities. Apart from a well-diversified blend of investments, they also promote automatic portfolio balancing. That is to say that multi asset allocation funds give investors an overall answer for seeking balance and diversity.
This article will outline the importance of portfolio rebalancing and how it can be made simpler through the application of multi-asset allocation funds.
Role of Multi Asset Allocation Funds in Portfolio Rebalancing
Portfolio rebalancing is a primary purpose of multi asset allocation mutual funds. As a result, these funds diversify by investing in various asset classes such as equity, debt and commodity. In this regard, diversification is essential as different assets have different performances across different market conditions.
In terms of rebalancing, multi-asset allocation funds are dynamic and automatically adjust their asset allocation based on changing market conditions and fund strategies. This means that investorsโ portfolios will not need to be adjusted manually which can be complicated and time-consuming.
So basically, multi-asset allocation funds simplify portfolio management by providing diversification and automatic rebalancing, helping investors maintain a balanced portfolio aligned with their investment goals and risk tolerance.
Steps to Rebalance Portfolio with Multi Asset Allocation Funds
Rebalancing a portfolio with multi-asset allocation funds involves several steps:
1. Analyze the Portfolio
In the first step of rebalancing, the fund house analyzes the portfolio to understand the current weightage of each asset class. This involves comparing the actual percentage of each asset (like stocks, bonds, etc.) in the portfolio with the percentage that was initially planned. This helps identify any deviations from the original asset allocation plan.
2. Compare Funds
In the second step, the fund house makes a comparison between the invested assets. This implies that the fund house determines how much each asset class differs from the initial scheme. For any of the assets, if their weights are above or below what they ought to be, then this means that they would be sold off/purchased more in such cases.
3. Sell the Assets
In this step, the fund house sells investments from asset classes that are overrepresented in your portfolio. This means if certain assets have grown beyond your target allocation, the fund reduces your holdings in these assets.
4. Buy More Assets
The fund house buys investments in asset classes that are underrepresented in your portfolio. If certain assets have fallen below your target allocation, the fund increases your holdings in these assets. This step helps to realign your portfolio with your original asset allocation strategy.
Conclusion
Rebalancing your mutual fund portfolio with multi-asset allocation funds is a strategic approach to diversify risk and optimize returns. These funds invest across various asset classes like equity, debt, and gold, providing a balanced risk-reward ratio.
Regular rebalancing ensures alignment with your financial goals and risk tolerance. Itโs a dynamic way to stay resilient in volatile markets, making it a valuable addition to your investment strategy. Remember, the key to successful investing is not just about choosing the right funds, but also managing and rebalancing them effectively. To invest in equity funds, hybrid funds, and more, open an account with Dhan.
Last Updated on by Icy Tales Team
