Inflation to tax-savings: DSP Mutual Fund expert lists out these benefits of multi-asset funds

livemint.com:

Mutual Fund said that investing in multi-asset funds brings diversification, helps manage market cycles, and aims to beat inflation. She suggested that investors consider multi-asset funds as a lower-risk, tax-efficient allocation that beats inflation and participates in equity compounding. Aparna Karnik, SVP, DSP Mutual Fund is the fund manager for DSP's Multi-asset Fund, Value Fund, and Quant Fund.

You can create a blended portfolio in several ways depending upon your risk appetite, return expectations, and keeping in mind considerations relating to tax, turnover, etc. I will describe three commonly used approaches The first is an optimisation-based approach that considers long-term returns, risk, and correlations for asset classes and arrives at an optimum asset mix that maximises returns for a given risk tolerance. This is largely based on historical data and tends to have fairly steady allocations to the different asset classes.

The second approach uses macro-based forecasting to identify the most attractive asset classes using macro trends such as GDP, inflation, earnings, policies, etc. to give large weights to asset classes that are expected to outperform, with low weights to other asset classes. This is a forward-looking approach and hinges on the accuracy of the forecasts.

This approach can have very outsize allocations and its outcomes depend largely on the skill of the forecaster. The third approach is systematic - driven by factors like value or momentum. This is based on mean reversion or trend following rules.