Diversification can be built at two levels. An equity fund spreads money across companies, while a multi asset allocation fund spreads money across asset classes. Used together, they can create a portfolio with both potential growth and broader risk drivers. The combination still needs a clear purpose. A multi asset fund may already hold a large equity share, so adding an equity fund can raise total equity exposure more than expected.
What each fund contributes
An equity fund invests mainly in shares and may focus on a market cap, style or sector. Its potential returns depend largely on company earnings and market valuation.
A multi asset allocation fund invests in at least three asset classes, with at least 10% in each of the three. The mix may include equity, debt and gold.
The second fund can add assets that respond differently to interest rates, currency and global risk. This may reduce reliance on one market, but correlations can change.
Set the total asset mix first
The starting point is the desired share of equity, debt, gold and other assets. The holdings inside both funds should then be added together.
For example, a high-equity multi asset fund plus a pure equity fund can produce an aggressive portfolio. The name “multi asset” does not automatically mean low risk.
The equity fund can be used to raise long-term potential growth, while the multi asset fund can handle part of the rebalancing across assets.
Risks that should not be ignored
Both funds may own some of the same equity shares, creating overlap. Debt holdings can face interest-rate and credit risk. Gold can fall, and equity can suffer deep declines. The manager’s allocation calls may lag. Diversification reduces some risks, not all risk.
A steady way to build the allocation
A target split between the two funds can be reviewed yearly. New contributions may be directed to the underweight part instead of making frequent switches.
In an equity and multi-asset mix, a regular investment plan can help spread purchases across different market levels. It does not assure potential returns and it does not prevent losses. The amount should remain affordable even when markets fall or household costs rise.
In an equity and multi-asset mix, the portfolio can be reviewed once or twice a year, or after a major change in the goal. Frequent changes based on recent performance may lead to buying after a rise and selling after a fall.
What to check before investing
Review each scheme’s asset range, current portfolio, equity market-cap mix, debt quality, gold exposure, cost, benchmark and tax treatment.
In an equity and multi-asset mix, the scheme information document explains the mandate and risk. The factsheet shows the recent portfolio, market-cap mix and costs. The riskometer gives a standard view of the scheme’s risk level. None of these can predict future potential returns, but together they support a more informed choice.
Use a look-through asset allocation
The label on each fund is less useful than assets held underneath. An equity fund with 100% equity and a multi asset allocation fund with 60% equity would create 80% equity if money were split equally between them. The remaining exposure would depend on the second fund’s debt, gold and other assets. This look-through method gives a clearer risk picture. It can also include provident fund, deposits, physical gold and direct shares outside the mutual fund portfolio.
Avoid counting the same equity twice
An equity scheme and a multi asset allocation fund may hold some of the same large companies. This is not always a problem, but it can make the portfolio more concentrated than number of schemes suggests. A look-through list of the largest holdings can reveal the overlap.
The target asset mix should also count equity held through the multi-asset scheme. If that share rises, new money can be directed towards debt or other assets, where suitable.
Rebalancing should consider tax, exit load and the goal date. The aim is to restore the planned risk. It is not to sell every asset that has risen or buy every asset that has fallen.
Use one portfolio view
Separate app screens can hide the overall mix. A single list of equity, debt, gold and cash across all schemes gives a clearer picture. The investor can compare that mix with the goal and time horizon. This also shows whether the multi-asset fund already provides enough non-equity exposure before another scheme is added.
Conclusion
An equity scheme and a multi asset allocation fund can create a diversified structure when their combined holdings match the planned asset mix. The useful question is not how many funds are held, but whether each fund adds a distinct and understood role.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.
The content herein has been prepared on the basis of publicly available information believed to be reliable. However, Bajaj Asset Management Limited (formerly known as Bajaj Finserv Asset Management Limited) does not guarantee the accuracy of such information, assure its completeness or warrant such information will not be changed. The tax information (if any) in this article is based on prevailing laws at the time of publishing the article and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.
