Multi-Asset Funds: A Strategic Approach to Portfolio Diversification
In the dynamic world of investing, multi-asset funds have emerged as a powerful tool for investors seeking to balance risk and returns. These funds are mandated to allocate a minimum of 10% each to at least three distinct asset classes, providing a built-in mechanism for diversification. By spreading investments across equities, debt, gold, silver, real estate investment trusts (REITs), and international equities, these funds aim to smooth out the inevitable swings in financial markets.
Recent Market Corrections and Fund Adjustments
Recent volatility in precious metals has highlighted the importance of adaptive investment strategies. Gold ETFs have fallen over 12% since 29 January, and silver ETFs have slumped more than 24% as of 4 February. This correction is attributed to profit-booking and expectations of a stronger dollar following the nomination of hawkish Kevin Warsh as the next US Federal Reserve chair. Despite this, over the last one-year period, gold ETFs have delivered over 80% returns, while silver ETFs have yielded an impressive 176%.
In response to these market movements, fund managers have been actively tweaking their allocations. Aparna Karnik, fund manager at DSP Mutual Fund, noted, "We have seen a really sharp rally in precious metals, and most multi-asset allocation funds were able to participate in the rally to varying degrees." Many funds are now trimming exposure to precious metals while increasing allocations to equities, which have underperformed recently.
Investment Strategies and Allocation Tactics
Multi-asset funds operate with dynamic strategies, allowing fund managers to shift between asset classes based on market conditions. Ihab Dalwai, senior fund manager at ICICI Mutual Fund, explained, "We have done some profit-booking in precious metals. Our net equity allocation is now close to 65% from 50% at the start of last year. Equity as an asset class has not done well, so we are adding exposure there." He added that selective investments in small-caps, which have corrected 20-30%, are being considered where favorable risk-reward opportunities exist.
Other fund managers, like Dinesh Balachandran of SBI Mutual Fund, have adopted a cautious yet gradual approach to increasing equity allocations. Balachandran stated, "We have been cautious on equities, but recently have been gradually increasing allocation." The fund’s net equity allocation stood at around 40% as of 31 December 2025, with a focus on adding exposure to other commodity segments like energy.
Structural Frameworks and Rebalancing Mechanisms
Different fund houses employ varied frameworks to manage allocations. Ashutosh Bhargava of Nippon India Mutual Fund detailed their strategic approach: "Nippon India Multi Asset Allocation Fund attempts to follow a strategic allocation across four different asset categories: domestic equity (approximately 50%), international equity (about 20%), commodities (about 15%), and the rest in debt, with an internal deviation range of 5%." This structured method ensures rebalancing when large shifts occur, maintaining alignment with targeted ranges.
Similarly, DSP Mutual Fund’s strategy revolves around a neutral anchor allocation, with defined ranges for adjustments. Karnik elaborated, "Around this anchor, we operate within clearly defined ranges. For instance, domestic equities typically have a lower bound of around 35% and an upper limit of about 50–55%." This approach avoids aggressive swings and instead focuses on incremental changes based on valuations and relative attractiveness.
Tax Implications and Investor Considerations
The tax treatment of multi-asset funds is closely tied to their equity exposure. Funds with at least 65% allocation to equities are classified as equity funds for tax purposes, benefiting from long-term capital gains taxed at 12.5% after a one-year holding period, with exemptions up to ₹1.25 lakh. In contrast, funds with equity exposure between 35% and 65% face different tax rules, where long-term gains are taxed at 12.5% only after a two-year holding period.
Experts emphasize that investors should not overly focus on tax status but instead seek funds that offer genuine diversification. Kirtan Shah, founder of Truvanta Wealth, advised, "Investors should look for a multi-asset fund that truly delivers diversification across asset classes and behaves like a genuine multi-asset strategy."
Behavioral Benefits and Practical Takeaways
Multi-asset funds address common behavioral biases that often hinder individual investors. Kavitha Menon of Probitus Wealth pointed out, "Most investors struggle to take advantage of market corrections to increase equity exposure. Behavioral biases often hold them back at precisely the wrong time." These funds automate rebalancing, adding underperforming assets and trimming overperformers without triggering tax liabilities—a significant advantage over manual rebalancing.
Aarati Krishnan of Primeinvestor.in highlighted another key benefit: "Many investors tend to go overboard on assets which are outperforming, while neglecting those which are lagging. Multi-asset allocation funds address this problem by enforcing asset allocated portfolios." This disciplined approach helps investors participate in at least one well-performing asset class during any economic cycle.
Conclusion: Building a Resilient Portfolio
Multi-asset funds offer a one-stop solution for investors aiming to diversify their portfolios and mitigate volatility. By combining asset classes that move differently, these funds help smooth out market swings. However, not all multi-asset funds are identical; their allocations can vary widely. Investors should carefully study both current allocations and historical evolution, choosing funds that align with their risk tolerance. As the investment landscape evolves, multi-asset funds remain a valuable component of a core portfolio, providing strategic diversification in an unpredictable market.
