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Multi-asset funds explained: Why returns are not the same

Multi-asset funds explained: Why returns are not the same

Summary

A multi-asset allocation fund blends diverse asset classes into a single portfolio.

Multi-asset funds provide risk-adjusted returns that are vital for long-term wealth creation. It gives investors exposure to equity, debt, international, commodities, indices, ETFs, etc., through a single fund scheme. These funds are now available in a variety of sub-categories, including FoFs, which makes them customized for specific investor expectations.

Multi-asset funds are ideal for investors who are looking for exposure to multiple asset classes through a single fund. If you want to invest across debt, equity, commodities, etc., without actively managing each of them, the answer to your need is a multi-asset allocation fund. 

What is a multi-asset allocation fund?

The definition of a multi-asset allocation fund, as defined by the Securities and Exchange Board of India (SEBI), can be summarized as,

  • Multi-asset allocation funds are open-ended mutual funds
  • These funds must invest in at least three asset classes
  • At least 10% allocation must be maintained in each asset class

Also, read – GIFT city funds for NRI

Which categories do multi-asset funds invest in?

While SEBI requires multi-asset funds to invest in at least three asset classes, these funds can invest across a variety of assets. Some of the assets that multi-asset funds typically invest in are,

  • Equity and equity-related instruments – This includes stock market investments across different market capitalizations, like large cap, mid cap and small cap stocks.
  • Debt instruments – Assets in the debt category include government bonds (G-Secs), corporate Bonds, fixed income securities, etc.
  • Commodities – It predominantly includes investments in precious metals such as gold and silver primarily through Exchange-Traded Funds (ETFs) and gold/silver funds as direct commodity exposure is limited in mutual funds.
  • Global – It invests in global stocks or funds across different countries.
  • Other categories – To stabilize the portfolio through diversification, these funds also invest in instruments like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs). 

Variants with  different investment structures

Multi-asset allocation fund variants include the following,

  1. Regular multi-asset funds invest directly in different asset classes
  2. Multi-asset funds of funds (FoFs) invest in other mutual funds and ETFs, such as gold ETFs, equity funds and bond funds

Besides, multi-asset funds can be actively or passively managed. Here’s how they both differ:

CriteriaActively Managed FundsPassively Managed Funds
Fund manager’s approachActive decision making in allocation and asset selection.Relies on predefined indices and criteria.
InvestmentsDirect stocks, bonds and commodities.Strong presence of ETFs and index funds in AUM.
ObjectiveOutperform market performance.Track and achieve market or index performance.
ComplexityHigh complexity due to fund manager decisions and strategy.Simpler and transparent due to a rule-based approach.
CostHigher expense ratio due to active fund manager involvement.Low cost but fund of funds layer can escalate costs.

Apart from these variants, the emergence of omni multi-asset funds has added a new dimension to this fund category. These funds invest in multiple asset classes, and while doing so, they choose active as well as passive ETF, index or regular fund schemes. Such schemes may be chosen from different AMCs (Asset Management Companies).

Also, read – How many mutual funds should you hold?

Why invest in multi-asset allocation funds?

The FoF layering and varied management style mean that multi-asset allocation funds have become a rapidly evolving segment. This has garnered significant investor attention as well. The Association of Mutual Funds in India (AMFI) has observed that multi-asset funds are gaining popularity in recent months. The total Asset Under Management (AUM) in this fund category stands at around Rs. 1.83 lakh crore, spread across 49.1 lakh folios. In February 2026 alone, the best multi-asset allocation funds saw a net inflow of ₹8,500 crores.

  • Fund variants: The option of different variants in multi-asset allocation funds means investors get exposure to both actively and passively managed funds with a single investment.
  • Combined expertise: The composite structure of these funds combines the expertise of multiple fund managers. Switches between managers and asset classes do not attract any tax liability either.
  • Diversification: Its diversification across different asset classes ensures that the fund  helps reduce overall portfolio volatility, though it does not eliminate market risk.It can balance risk and return to grab opportunities across different market cycles.
  • Investor preference: More investors prefer all-weather portfolios that are not dependent on one asset class. They get long-term wealth creation through risk-adjusted multi-asset fund returns.

Also, read – What Are Alternate Investment Funds?

Wrap up

The popularity of multi-asset allocation funds indicates a shift in investor preference towards risk-balanced diversification over market timing. The emergence of sophisticated scheme variants, from actively managed schemes to passive options and omni multi-asset FoFs, continues to accelerate this popularity further.

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FAQs

How do omni multi-asset FoFs differ from traditional FoFs?

Unlike traditional FoFs, omni multi-asset FoFs apply multi-manager strategies across different AMCs. Their investment structure is more flexible and broader, offering multiple asset classes within one product.

Are multi-asset funds suitable for family offices and wealth pools?

Yes. Family offices and wealth pools can ensure risk-adjusted returns through the uncorrelated asset structure of multi-asset funds. This can help them achieve long-term growth and wealth preservation.

What role do commodities play in multi-asset fund portfolios?

Commodities like gold and silver act as an inflation hedge and a portfolio  diversifier. They also act as a safe haven in times of geopolitical or economic crisis.

What are the key risks associated with multi-asset FoFs?

Multi-asset FoFs may have limitations based on regulatory caps and scheme mandates, which can affect overseas diversification. Unlike regular multi-asset funds. This domestic market bias can be a challenge for them when it comes to diversification.

How do multi-asset funds compare with Portfolio Management Services (PMS)?

PMS is highly customized, while multi-asset funds are pooled investments designed for retail investors. However, multi-asset funds are low-cost investments with a minimal entry barrier. PMS can be availed only for big-ticket portfolios, and they involve performance-linked fees.
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