When markets experienced significant volatility over the past year, diversification strategies proved their worth. Multi-asset mutual funds emerged as clear winners, delivering superior returns compared to both equity-focused and balanced hybrid funds.
Superior Performance Numbers
The data tells a compelling story. According to compiled information, the top ten multi-asset funds achieved an average compounded annual growth rate of 20.26 percent over the past year. Their three-year performance stands even stronger at 21.01 percent CAGR.
In comparison, the top ten equity-focused funds managed only 16.62 percent growth over the same one-year period. Just seven of these equity funds posted double-digit returns. Only four equity funds managed to beat the average return of the multi-asset category.
Hybrid Funds Lag Behind
Balanced or hybrid funds showed even weaker performance. The top ten hybrid funds delivered approximately nine percent CAGR over the past year. Only two hybrid funds achieved double-digit returns during this period.
ICICI Prudential Equity & Debt Fund Direct Growth provided one exception with 14.96 percent returns, slightly outperforming UTI Multi Asset Allocation Fund Direct Growth at 14.54 percent.
The Gold and Silver Advantage
The standout performance of multi-asset funds stems largely from their exposure to precious metals. Gold prices surged nearly 76 percent over the past year, while silver skyrocketed an astonishing 168 percent according to MCX data.
This precious metals rally offered crucial diversification benefits precisely when equity markets showed volatility and debt returns remained modest. The benchmark Nifty 50 and Sensex indices rose only about eight to ten percent during the same period.
Fund Allocation Strategies
By design, multi-asset schemes invest across at least three asset classes with minimum ten percent allocation to each. Typically, these include equity, debt, and commodities.
The best performing funds demonstrate significant commodity exposure. Nippon India Multi Asset Allocation Fund Direct Growth delivered over 25 percent returns with 17 percent of its portfolio allocated to commodities. Aditya Birla Sun Life Multi Asset Omni FoF Direct Growth provided 24 percent returns with 22 percent commodity allocation.
While exact commodity breakdowns remain undisclosed, fund websites confirm heavy investments in gold ETFs and other commodity investment modes.
Investor Confidence Grows
The popularity of multi-asset funds shows clearly in recent investment flows. According to AMFI data, these funds attracted among the highest net inflows in December at Rs 7,425.98 crore. Only exchange-traded fund schemes saw higher inflows during that month.
This represents a significant shift from December 2024, when multi-asset funds attracted just Rs 2,574.72 crore in net inflows, trailing behind mid-cap, small-cap, sectoral, and flexi-cap funds.
Expert Perspective
Devender Singhal, fund manager at Kotak Mahindra Asset Management Company, emphasizes the risk-adjusted benefits of multi-asset funds. "People should look at multi-asset funds as an avenue to maximise their risk-adjusted returns," he states. "Having multiple asset classes reduces your market risk substantially."
Singhal attributes recent outperformance to global volatility driving precious metals higher. "The recent global volatility on both political and economic front has led to sharp outperformance of precious metals, thus helping multi-asset funds outperform the equity market last year."
Looking ahead, Singhal notes that continued outperformance depends on several factors including US trade deals, monsoon patterns, and corporate earnings performance.
Equity Fund Exceptions
Among equity-focused funds, four managed to exceed the 20.26 percent average return of multi-asset funds. Edelweiss US Technology Equity FoF Direct Growth delivered 24 percent returns, while Motilal Oswal BSE Enhanced Value Index Fund Direct Growth achieved 27 percent.
ICICI Prudential Transportation and Logistics Fund Direct Growth and ICICI Prudential Nifty Auto Index Fund Direct Growth returned 22 percent and 21 percent respectively. Notably, the Edelweiss scheme invests in a US-based JP Morgan fund, insulating it from domestic market fluctuations.
Risk-Free Alternative
For investors preferring minimal risk, State Bank of India currently offers 6.25 percent interest on one-year term deposits. This follows the Reserve Bank of India's 125 basis point repo rate reduction to 5.25 percent in 2025.
The diversified structure of multi-asset funds allows fund managers to rebalance portfolios dynamically in response to changing market conditions. This flexibility helps smooth returns and reduce overall portfolio risk while capturing upside opportunities across different asset classes.
