There are two types of asset allocation funds – single manager and multi manager. As the name suggests single manager asset allocation fund is managed by single manager who reads schemes floated by the same mutual fund house, whereas a multi manager asset allocation fund invests in mutual funds schemes across fund houses.

"A multi manager asset allocation fund makes more sense for the first-time investor, as s/he may not be conversant with the functioning of each product in the mutual fund space and further may not have adequate information to choose the best funds," says Suri.

There is another reason for this differentiation. "Multi manager funds allow the fund manager to invest money in the best of the class mutual fund schemes to offer optimum risk-adjusted returns for naive investors which may not be the case with a single manager fund where the fund manager may not have much options," says Hiren Dhakan, associate fund manager, Bonanza Portfolio.

"Asset allocation schemes can invest in 'institutional plans' of other schemes that come with lower expense ratio. Small investors have to invest in retail plans with comparatively higher expenses," adds Suri.

But Hiren Dhakan also reminds by saying, “The fund manager must stock to the mandate given to him. Too much portfolio churn and stepping out of mandate for maximization of returns can increase risks”.