Balance Beats Bravado When Cycles Turn

While Indian equity markets swung between peaks and troughs over the past two years, gold and silver glittered and scaled record highs. And one mutual fund category turned this cross-asset divergence to its advantage: Multi-Asset Allocation Funds (MAAFs). By spreading investments across asset classes, MAAFs delivered a compelling 16 per cent CAGR during this period, outperforming 8-12 per cent returns by hybrid peers, market-capitalisation-oriented equity funds and broader benchmarks.

The MAAF category also attracted nearly ₹93,000 crore in net inflows over two years and now holds ₹1.75 lakh crore in AUM, making it one of the most sought-after segments in recent times.

As per regulations, MAAFs are hybrid mutual funds that invest in at least three asset classes, typically equities, debt and commodities such as gold and silver, with a minimum 10 per cent allocation to each. Currently, 44 schemes operate under this diversification mandate, though they follow widely differing asset-allocation strategies and risk profiles.

This raises two critical questions for investors. First, if a well-balanced, proven portfolio has traditionally been constructed by combining equity, hybrid, debt and commodity funds over time, where does a predefined, all-in-one MAAF fit? Second, with 44 schemes offering vastly different asset mixes and risk profiles, which MAAF truly aligns with your financial goals? Choosing the wrong one could result in unintended risk or missed return opportunities.

In this article, we examine their portfolio strategies, performance track records and assess suitability for different investors.

Classification

Beyond traditional actively-managed MAAFs, a newer wave of Fund of Funds (FoFs) has entered the space following regulatory changes in February 2025. Based on their structure and investment approach, these funds broadly fall into three categories.

One, Active Multi-Asset Allocation Funds, which rely on dynamic, model and manager-driven allocation.

Two, Multi-Asset Passive FoFs, which invest in a basket of passive index funds and ETFs across asset classes.

Three, Multi-Asset Omni FoFs, which combine passive and active fund structures within a single umbrella.

Active Multi-Asset Allocation Funds

Currently, 33 funds in this category aim to deliver diversification across asset classes. This include equities, arbitrage strategies, debt, gold, silver, overseas equities, and REITs and InvITs. Of these schemes, six have track records exceeding seven years.

Asset allocation in these funds is largely dynamic and tactical, positioning portfolios in response to shifting market conditions, macroeconomic signals and emerging opportunities. The objective is to optimise risk-adjusted returns. Most schemes blend quantitative inputs such as valuation metrics and economic indicators with active fund manager judgment to fine-tune allocation decisions.

These active MAAFs can be further classified based on their allocation to long equity: Funds with 65 per cent and above in equities, funds with less than 65 per cent in equities and those with nil long equity exposure.

Among funds allocating 65 per cent or more to equities, notable track records are seen in offerings from ICICI Prudential MF, HDFC MF and quant MF. In the below 65 per cent segment, established names include SBI MF and Nippon India MF. Edelweiss MAAF, meanwhile, is the only fund in the category with no long equity exposure.

While the common objective across the category is to balance risk and returns, investment approaches vary significantly. This is in terms of asset allocation mix, equity intensity and overall risk profile. Here, we explain the major differences in asset mix that investors need to watch out for.

Nil equity allocation

Most schemes maintain exposure to unhedged equities, with one notable exception — Edelweiss Multi Asset Allocation Fund. Structured as a debt-oriented strategy, the fund primarily relies on arbitrage positions across equities, gold and silver, supplemented by accrual income from debt instruments. Consequently, its return profile resembles that of debt and arbitrage funds. Over the past year, it delivered around 7 per cent, broadly in line with the arbitrage and short-duration fund categories, which generated average returns of about 6 per cent and 6.4 per cent, respectively.

Higher equity allocation

Currently, 21 MAAFs invest at least 65 per cent in equities. Most actively deploy arbitrage strategies, including ICICI Pru, Quant, Bandhan and HDFC MAAF. However, funds that maintained higher unhedged equity allocations over the past year include Baroda BNP Paribas, Groww and Kotak MAAF, which held average exposures between 68 per cent and 70 per cent. A higher unhedged equity position tends to generate stronger long-term returns but also increases risk.

Mid- and small-cap heavy portfolios

Some funds maintain a significant tilt toward mid- and small-cap stocks. Over the past year, LIC MF (30 per cent), Bandhan (26 per cent) and HSBC MAAF (26 per cent) had the highest exposure to this segment, compared with the category average of 15 per cent. While this positioning can enhance return potential, it also raises volatility and downside risk. Conversely, funds such as HDFC, Sundaram and Shriram MAAF maintained higher large-cap allocations, averaging 55-57 per cent compared with the category average of 39 per cent.

Exposure to gold and silver derivatives

While most multi-asset funds gain exposure to gold and silver through ETFs or physical holdings, some schemes, for instance, from Edelweiss, ICICI Prudential, and WhiteOak Capital, also use commodity derivatives. Derivatives allow managers to take exposure with lower upfront capital and greater tactical flexibility. However, such instruments are meant to capture arbitrage opportunities between spot and futures prices and do not replicate the capital appreciation characteristics of direct holdings.

Exposure to industrial commodities

Tata Multi Asset Opportunities Fund differentiates itself by gaining exposure not only to gold, but also to industrial commodities such as crude oil, copper, zinc and aluminium through exchange-traded commodity derivatives, typically holding up to 5 per cent in these exposures. ICICI Prudential Multi-Asset Fund has also taken small positions in base metal derivatives. These allocations provide indirect access to industrial commodities that are otherwise difficult to hold directly.

Overseas allocation

About seven funds have allocated to overseas equities over the past year. As of January 2026, DSP MAAF (15 per cent), Invesco India MAAF (14 per cent), Bandhan MAAF (8 per cent) and Nippon India MAAF (6 per cent) had notable exposure. While Invesco India primarily allocates to US equities, DSP and Nippon India offer broader global diversification.

Allocation breadth

A few MAAFs from WhiteOak Capital, ICICI Pru and Aditya Birla SL invested across seven asset classes in at least 10 of the past 12 months. These include domestic equities, arbitrage, debt, gold, silver, overseas equities, and REITs and InvITs.

Silver versus gold

Over the past six months (July 2025 to January 2026), aggregate gold allocation rose from ₹7,700 crore to ₹20,000 crore, while silver exposure declined from ₹6,200 crore to ₹5,500 crore. Funds like Kotak and SBI MAAFs currently allocate more to silver than gold. Unlike gold, which functions largely as a safe-haven asset, silver behaves more like an industrial commodity, adding both volatility and return potential.

Passive FOF MAAFs

India’s FoF landscape has entered a more structured phase following SEBI’s standardised framework issued in February 2025. Within this revamped structure, two emerging segments are Multi-Asset Passive FoFs and Multi-Asset Omni FoFs.

A Multi-Asset Passive FoF invests exclusively in passive underlying schemes such as index funds and ETFs across asset classes. These schemes are required to allocate to equity, debt and commodity funds, with a minimum 10 per cent in each. Portfolio construction is largely rule-based and benchmark-aligned, leaving limited scope for fund manager discretion. Currently, five such funds from Aditya Birla Sun Life, Motilal Oswal, Bandhan and Zerodha together manage about ₹392 crore in assets, with regular plan expense ratios ranging between 0.5 per cent and 0.6 per cent.

In contrast, a Multi-Asset Omni FoF combines active and passive underlying schemes within a single structure. This allows AMCs to blend alpha-seeking active strategies in select asset classes with passive exposure. While the Omni approach can enhance risk-adjusted returns if active calls succeed, it also introduces fund-selection risk and higher layered costs. Currently, six Omni FoFs manage around ₹5,364 crore, with regular plan expense ratios ranging between 1.1 per cent and 1.5 per cent.

Suitability: Investors should examine several aspects before investing. First, FoFs levy their own expense ratio in addition to the costs of underlying schemes. Second, although the framework prescribes minimum allocation thresholds, actual asset weights can vary significantly across schemes. Third, passive FoFs may experience tracking differences due to ETF spreads, while Omni FoFs can face portfolio overlap across active holdings.

The regulatory overhaul has also led to scheme rationalisation. AMCs were required to re-categorise existing FoFs under the new structure by August 31, 2025, which means historical performance may not fully reflect the current mandate. Recently, fresh inflows into ICICI Prudential Passive Multi-Asset FoF were suspended by the fund house. Since its launch, the scheme has maintained exposure to diversified overseas equity assets. However, under the SEBI’s revised FoF framework, allocations must now be country-specific, region-specific, or theme/sector-based. To align with the new regulations, the AMC has opted for grandfathering. As a result, the scheme will no longer accept fresh investments and will either be merged or wound up within three years — by January 2029.

In terms of suitability, Multi-Asset Passive FoFs are appropriate for cost-conscious investors seeking disciplined asset allocation through a simple structure. Multi-Asset Omni FoFs may suit investors comfortable with active risk and confident in an AMC’s ability to select outperforming funds.

What should you do?

Recent outperformance of MAAFs has been largely driven by allocations to gold and silver. To evaluate their core capability, it is useful to examine performance before the precious metals rally. Between June 2018 and June 2024, three-year rolling return data show that MAAFs with over 65 per cent equity exposure delivered an average CAGR of 18 per cent, broadly matching the 17.9 per cent return of the Nifty 50 Total Return Index. Category leaders such as quant Multi Asset Fund and ICICI Prudential Multi-Asset Fund delivered about 30 per cent and 21 per cent, respectively.

MAAFs have also shown resilience during downturns. In the Covid-led crash of 2020, these funds declined by an average 26 per cent, compared with a 38 per cent fall in the Nifty 50 TRI. However, balanced advantage funds (BAFs) managed to contain well with -23 per cent. Likewise, during the correction between September 2024 and March 2025, they fell around 8 per cent versus a 15 per cent decline in the index and a 10 per cent fall in BAFs, underscoring their cushioning ability.

From a taxation perspective, MAAFs, including active and passive FoFs, fall into two buckets. Active MAAFs with 65 per cent or more in domestic equities qualify for equity taxation — 20 per cent short-term capital gains if redeemed within 12 months and 12.5 per cent long-term capital gains on gains exceeding ₹1.25 lakh annually, if held beyond 12 months.

Those with less than 65 per cent equity exposure, along with FoFs, are taxed as other than specified mutual fund schemes — short-term gains (within 24 months) are taxed at slab rates, while long-term gains (after 24 months) are taxed at 12.5 per cent without indexation.

MAAFs have demonstrated their ability to cushion volatility and benefit from cross-asset opportunities. The real question is how they fit into your overall portfolio.

For investors who lack the time or discipline to rebalance across asset classes, a MAAF can serve as a convenient core holding, offering built-in diversification and tactical allocation. However, for seasoned investors already managing a structured mix of equity, debt and commodities, adding a MAAF may create overlap and reduce control over asset weights.

With a larger number of schemes following widely different allocation strategies, selection becomes crucial. The wrong choice can distort your portfolio’s risk profile — either by increasing unintended equity exposure or diluting growth potential. In conclusion, if simplicity and disciplined rebalancing are priorities, a carefully-chosen MAAF can work well. If customisation and precision matter more, a self-constructed portfolio may be preferable only if you are sophisticated enough to manage multiple asset classes.

Investors should look beyond the category label and examine each fund’s long-term equity allocation range, commodity strategy and consistency across market cycles. AMC literature, such as product notes and factsheets, provides critical insights into these aspects.

Investors seeking equity-like returns and comfortable with drawdowns can consider 65+ per cent equity MAAFs, such as those offered by ICICI Prudential Multi-Asset Fund, Quant Multi Asset Allocation Fund and HDFC Multi-Asset Allocation Fund. Those looking for better downside cushioning with lower equity exposure may prefer sub-65 per cent equity options like the Nippon India Multi Asset Allocation Fund, SBI Multi Asset Allocation Fund, and UTI Multi Asset Allocation Fund. Investors seeking debt-like stability, with minimal equity participation and limited upside potential can consider the Edelweiss Multi Asset Allocation Fund.

Published on February 14, 2026