Introducing the Zerodha Multi Asset Fund

If you ever feel like the stock market is an overwhelming place, you’re not alone. Every day, we’re bombarded with information: “buy this stock,” “sell that one,” “this expert predicts a crash”. It’s enough to make anyone feel like they’re overwhelmed and a step behind.

It’s easy to believe that successful investing means you have to be a genius stock picker or a market-timing wizard. The good news is that’s not the case. Asset allocation matters most for portfolio returns, not security selection or market timing. A famous study showed that asset allocation, that is, how you divide your investments across different asset classes, impacts your overall returns far more than picking individual securities or trying to time the market.

Their main finding of the study was that the asset allocation decision explained roughly 90% of the variation in portfolio returns over time and that security selection and market timing accounted for only a small portion of performance differences.

In short, according to the study, it’s asset allocation that is the primary driver of investment performance and not the picking of individual securities or market timing skills.

Let’s dive a bit deeper into this….

I know, “asset allocation” sounds like financial jargon. But it’s just a formal way of saying, “Don’t put all your eggs in one basket.” It’s about owning a thoughtful mix of different types of assets because they behave differently during the market’s inevitable ups and downs.

Why is this so important?

This is crucial because, as historical data shows, the top-performing assets change from year to year—a pattern clearly illustrated here.

Hence, to guess next year’s winner may require a crystal ball!

Therefore, a wiser & simpler approach is to own a piece of the key asset classes, i.e., have a well-diversified portfolio across various assets and segments. A well-diversified portfolio might not capture the dizzying highs of the single best asset in a great year, but it may provide better risk-adjusted returns over a longer term. In simpler words, it turns a rollercoaster into a much smoother, more manageable ride.

So, what are these different types of assets? Each asset class has a specific job to do within your portfolio. Think of it like building a team, where each player has a unique skill. It’s good to start with the simpler & the popular ones first, i.e., equity, debt, and gold, and at a later point, once your portfolio is stable and meeting your stated objectives, you may look at adding more exposures like international securities, etc.

Here’s a simple breakdown:

Looking at general market history, we’ve seen that stocks act as the engine for growth, though they are known for their bumpy ride. G-secs and cash have typically played the role of shock absorbers, and gold has frequently served as a cushion, holding its value when other parts of the market are uncertain.

Let’s be honest: The hard part

In theory, this all sounds pretty straightforward, right? But in practice, this is where most of us get stuck.

How do you choose the right mix? The sheer number of choices can lead to a situation where you get so stuck trying to find the perfect mix that you end up doing nothing.

Can you stick to the plan? Once you find the mix, you might face a situation where the asset allocation changes due to market corrections. The real challenge is rebalancing—selling some of what’s gone up and buying more of what’s gone down. It feels completely counterintuitive, but it’s crucial for managing risk. It takes a lot of discipline to do this consistently.

Do you have the time? Honestly, managing several different investments, tracking them, and dealing with the rebalancing and taxation is a chore most of us would rather not have.

Our approach is a simpler solution

If we know asset allocation is vital, but doing it yourself is a hassle, what’s the answer?

This is the exact problem we wanted to solve for you when we launched Zerodha Fund House. We believe that simple products can be powerful tools. That’s why we focused on creating a straightforward approach.

We designed the Zerodha Multi Asset Passive FoF, a 4-in-1 fund that invests across Equity Largecap, Equity Midcap, Gold, and G-sec ETFs in a predefined allocation that does the heavy lifting for you. It invests in a predefined mix of ETFs that aims to take an exposure of close to:

• 30% in Large Cap 100 ETF—following the top 100 index, which consists of companies that are generally considered the market leaders of their respective sectors
• 30% in Mid Cap 150 ETF—following the Mid Cap 150 index, which gives exposure to companies with relatively higher growth potential
• 25% in Gold ETF—tracking gold, which acts as a hedge against equity market uncertainty
• 15% in 8-13 Yr G-Sec ETF – investing in government securities with an aim to provide further stability to the portfolio

The fund aims to maintain this balance for you, offering a diversified and tax-efficient approach to long-term wealth creation in a single investment.

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The most important takeaway

Here’s what I really want you to take away from this: The strategy is more important than any single product.

You can use the ideas and the allocation mix we talked about as a starting point or a mental model for building your own portfolio. The goal is to understand the why behind it. If you build it yourself with underlying assets of your choice, you’re still applying the same powerful principle.

Asset allocation is a big topic, and my goal was to start a conversation. We’ve only scratched the surface. There are nuances around how your allocation might change with age, your specific financial goals, or your personal comfort with risk.

A famous study source

– Vishal Jain, CEO Zerodha Fund House

To prevent unnecessary cost due to rebalancing, our investment strategy would be to maintain individual allocations within a 5% band of the proposed mix. Further, please note that the exposure mentioned above is only an intended illustration, and the actual exposure may vary depending on various factors.

Note: Please refer to the SID for the Asset allocation pattern of the Scheme which is 50% – 70% in Domestic Equity ETFs/Index Funds, 10% – 20% in Domestic Debt ETFs/Index Funds, 20% – 30% in Commodity ETFs & 0% – 5% in Debt Securities and Money Market Instruments.

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Please note that this article or document has been prepared on the basis of internal data/publicly available information, and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. Please consult your financial advisor. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.