So you know that it is advantageous to spread your risks and diversify your investments across different asset classes like debt, equity and also gold. But it’s cumbersome to select the best bets within each asset class. Not surprisingly, mutual funds have figured this out and stepped in to plug the gap.

Hybrid or balanced mutual funds that invest in debt and equity have, of course, been around for ages. But in the last seven months, fund houses like Axis Asset Management Company, Taurus Mutual Fund, Religare Mutual Fund and Canara Robeco Mutual Fund have introduced hybrid schemes that invest in a combination of debt, equity and gold. The latest to step in is Kotak Mutual Fund, which has just launched its Kotak Multi Asset Allocation Fund.

Essentially, the Kotak scheme, whose new fund offer closes on January 14, is an open-ended debt scheme. It will invest 75 per cent to 90 per cent of its portfolio in debt and money market instruments. But it will also invest 5 per cent to 20 per cent each in equity and gold (through gold exchange-traded funds or ETFs).

Says Lakshmi Iyer, head, fixed income and product, Kotak Mahindra Asset Management Company: “At various points in time, different asset classes behave differently either in response to domestic or external stimuli. Our logic with the multi asset fund, which is predominantly weighted towards fixed income, is that debt will provide stability of returns while the alpha [or growth] will be derived from equity and gold.”

Gold will also provide “balance”, feels Iyer. “On back-testing, we’ve seen that with the addition of gold, the risk-adjusted returns are better,” she says.

Not everyone is convinced about such hybrid schemes though. Says Atul Karve, partner, Blue-Chip Investments: “Asset allocation is always good. But in my opinion, investments are not a short-term phenomenon and in the long-term, equity is undoubtedly the best performer.”

It’s also early days yet to assess the performance of such schemes. According to mutual fund tracker Value Research, the four such existing hybrid schemes — Axis Triple Advantage, Canara Robeco InDiGo, Religare MIP Plus and Taurus MIP Advantage — have given an average return of about 4.15 per cent since their launch (about seven months).

Iyer isn’t giving any guidance but she believes the Kotak Multi Asset Fund could possibly deliver 10 per cent to 11 per cent returns per annum, thus beating inflation and even the returns offered by fixed maturity plans.

For one, with the short-end of the yield curve moving up, yields per se have become attractive. The fund’s also optimistic on gold and equity thou-gh they’ve run up a lot in the last year. Gold could give 10 per cent to 15 per cent returns over the next couple of years, feels Iyer. And while the equity markets are at the “higher end of the fair value zone”, the fund house is “positive on mid-caps, which should out-perform large caps in 2011”, says Iyer.

Can’t an investor diversify his investments across these asset classes on his own? “It’s like going to a department store. With everything under one roof, it saves investors the hassle,” says Iyer.

By Aarti Dua