The year 2025 was a testament to the resilience of Indian mutual fund investors. Despite experiencing sharp swings and frequent reversals in the capital markets, investor confidence remained unshaken. The assets under management (AUM) for open-ended schemes witnessed a substantial climb, rising from Rs 67 trillion to Rs 80.5 trillion by the end of November 2025. This growth story was powered by continued equity inflows through systematic investment plans (SIPs), a surge in gold ETF holdings, and the rising popularity of innovative fund categories.
Multi-Asset Funds: The Diversification Champions
With equities going through an extended period of subdued performance, multi-asset funds emerged as the standout performers of the year. These schemes demonstrated the practical power of asset allocation as a buffer against market uncertainty. The category delivered impressive returns of close to 16%, significantly outperforming flexi cap funds, which managed only around 3%. Only funds focused on gold, silver, and overseas markets did better.
The logic is clear: it's only in hindsight that the best-performing asset class becomes obvious. By spreading investments across assets that don't move in sync, losses in one area can be balanced by gains in another. In 2025, spectacular rallies in precious metals fueled multi-asset portfolios. Gold rose 74.5% during the year, while silver skyrocketed by 138% (based on December 19 closing prices), even as major equity indices declined or posted modest single-digit gains.
"Multi-asset funds have taken centre stage largely because of their exposure to precious metals," Vivek Banka, founder of GoalTeller, explained. Atul Shinghal, founder and CEO of Scripbox, added that the structure resonated with investors. "In a year when gold and silver generated exceptional returns, the idea of one fund powered by multiple asset classes has resonated, especially with long-term investors who want diversification without managing several schemes," he noted.
The Rise of Income-Plus-Arbitrage Funds
A new hybrid category, income-plus-arbitrage funds, gained significant traction in 2025, appealing primarily to investors seeking tax efficiency. In these funds, less than 65% of the portfolio is in fixed income instruments, with the remainder deployed in arbitrage strategies. Arbitrage involves simultaneously buying and selling the same security in cash and futures markets to capture small price differences.
The key attraction is the tax treatment. When held for over 24 months, gains are taxed at a flat rate of 12.5%. In contrast, returns from standard debt funds are now taxed according to the investor's income tax slab, making them less attractive for those in the 20% or higher brackets. For example, an investor in the 30% tax bracket earning an 8% pre-tax return from a debt fund would see a post-tax return of about 5.7%. An income-plus-arbitrage fund with the same pre-tax return would deliver roughly 7% after tax.
"By pairing debt-like returns before tax with equity-style taxation, these funds significantly enhance post-tax results for investors with holding periods beyond two years," said Archit Doshi, Senior Vice President at PL AMC. Currently, around 20 such schemes manage assets of about Rs 24,500 crore.
Outlook for 2026 and Key Takeaways
Looking ahead to 2026, analysts expect precious metals like gold and silver to remain strong, reinforcing the case for asset allocation and hybrid funds in portfolios. With interest rates unlikely to see sharp cuts, duration-oriented debt funds may struggle to deliver attractive returns. Investors are also advised to watch for potential regulatory changes, including adjustments to market capitalisation limits for equity fund categories.
The year 2025 underscored critical lessons for the Indian investor: disciplined SIP commitments paid off during volatility, diversification through multi-asset funds provided stability and growth, and tax-efficient structures like income-plus-arbitrage funds offered smarter alternatives to traditional debt products. The sustained growth in AUM, even in a turbulent year, points to a maturing market where strategic, long-term thinking is gaining ground over reactive trading.
