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Summary: Multi-asset funds offer diversification by combining equity, debt and more in a single portfolio. This guide breaks down how multi-asset funds work, how they perform in bull and bear markets and whether they fit your needs.
Multi-asset allocation funds, commonly known as MAAFs, promise the best of both worlds—stable returns and protection from market downturns. These funds invest across various asset classes, offering you diversification, smoother returns and a more balanced risk profile in a single investment.
In this detailed guide, we’ll break down what multi-asset funds are, how they work, their benefits and risks, how they differ from other mutual fund types and how to choose the right one for your needs.
What are multi-asset funds?
Multi-asset funds are hybrid mutual funds that invest in at least three different asset classes, dedicating a minimum of 10 per cent to each. These typically include:
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Equity (for growth)
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Debt (for stability)
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Commodities like gold and silver (for inflation protection and diversification)
Some funds also include international equity, real estate investment trusts (REITs) or even arbitrage strategies. The idea is to create a diversified portfolio within a single fund, managed by professionals who decide the allocation based on market conditions.
How do multi-asset funds work?
Multi-asset funds operate by dynamically allocating money across asset classes based on market signals, valuations and macroeconomic trends. Their goal is to optimise the risk-return balance by shifting allocations as conditions change.
For example:
- If equity markets are trending upwards, the fund may increase equity exposure to capitalise on growth.
- If interest rates are attractive, it may shift more into debt.
- If there's uncertainty or inflationary pressure, it could raise gold or commodity exposure to act as a hedge.
As of February 28, 2025, the average allocation of the category stood as follows: equities (50 per cent), debt (25 per cent), commodities (15 per cent) and cash and cash equivalents (10 per cent).
Multi-asset funds vs Other hybrid funds
| Feature | Multi-asset fund | Aggressive hybrid fund | Balanced advantage fund |
|---|---|---|---|
| Number of asset classes | At least 3 | 2 (Equity + Debt) | 2 (Equity + Debt) |
| Equity allocation range | At least 10% | 65-80% | Dynamic: 0-100% |
| Rebalancing strategy | Tactical or strategic | Not dynamic | Dynamic |
| Suitable for | Broad diversification | First-time equity investors or long-term conservative equity investors | Investors wanting equity upside with active risk control |
Performance of multi-asset funds
To assess how multi-asset allocation funds have performed, we looked at their average returns during both bullish and bearish market phases since 2018 (owing to the introduction of SEBI's re-categorisation rules). For perspective, we compared their performance with that of aggressive hybrid funds and flexi-cap funds.
How multi-asset funds cushion the blow
Performance of fund categories during major market downturns
| Market downturn period | Multi-asset funds (%) | Flexi-cap funds (%) | Aggressive hybrid funds (%) |
|---|---|---|---|
| Aug '18 to Oct '18 | -6.6 | -14.4 | -11.1 |
| Jun '19 to Sep '19 | -3.0 | -9.6 | -7.5 |
| Jan '20 to Mar '20 | -22.5 | -35.5 | -28.9 |
| Oct '21 to Jun '22 | -8.0 | -18.7 | -14.6 |
| Sep '24 to Mar '25* | -7.8 | -19.4 | -13.6 |
| *Data till March 4, 2025. Note: Only Sensex declines of 10 per cent or more considered. |
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In the race, but not leading
How multi-asset funds performed during strong market rallies
| Bullish phase | Multi-asset funds (%) | Flexi-cap funds (%) | Aggressive hybrid funds (%) |
| Oct '18 to Jun '19 | 9.2 | 16.4 | 13.3 |
| Sep '19 to Jan '20 | 8.2 | 14.4 | 11.1 |
| Mar '20 to Oct '21 | 41.9 | 71.6 | 56.0 |
| Jun '22 to Sep '24 | 22.5 | 31.9 | 25.7 |
| Bullish phases are measured from market troughs to subsequent peaks. | |||
Multi-asset funds show their strength during market downturns. Thanks to their relatively lower equity exposure, they experience smaller drawdowns and are less volatile compared to aggressive hybrid and flexi-cap funds. However, this conservative positioning also means they don’t fully capture the upside during strong bull runs—often lagging significantly behind more equity-oriented peers.
Let’s take a look at the five-year SIP returns of the top three multi-asset funds:
| Fund name | 5Y SIP returns | AUM (Rs cr) | Expense ratio |
| Quant Multi Asset Allocation Fund | 24% | 3,570 | 0.57% |
| ICICI Pru Multi Asset Fund | 21.48% | 62,014 | 0.67% |
| UTI Multi Asset Allocation Fund | 17.92% | 5,890 | 0.59% |
Data for direct plans only. Excludes ETFs and FoFs.
How are multi-asset funds taxed?
Taxation depends on the last 12-month equity allocation of the fund:
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If the equity component is 65 per cent or more, it’s taxed like an equity fund:
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Long-term capital gains (LTCG): Taxed at 12.5 per cent beyond Rs 1.25 lakh if held for more than one year
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Short-term capital gains (STCG): Taxed at 20 per cent if held for less than one year
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If equity exposure is below 65 per cent, debt taxation applies. Debt-oriented funds are taxed at slab rates, which can be as high as 30 per cent for investors in the highest tax bracket.
Pros of multi-asset funds
1. Diversification: You don’t need to pick separate equity, debt and gold funds. One fund takes care of it all.
2. Lower volatility: Different asset classes perform differently at different times. When one falls, another may hold up, smoothing overall returns.
3. Professional asset allocation: Instead of rebalancing your portfolio manually, a fund manager does it for you.
Are multi-asset funds right for you?
Whether to add multi-asset allocation funds to your portfolio depends on your investing approach. If you want to avoid the hassle of rebalancing your portfolio, are comfortable with dynamic allocations or are new to investing, multi-asset funds can offer a convenient entry point. You could consider allocating a small portion of your overall portfolio to such funds.
Things to keep in mind
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Underperformance of one asset class can drag overall returns.
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Gold exposure, while helpful in downturns, may not always deliver strong returns.
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Complexity: You may not always understand why certain allocations are made.
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Inconsistency across funds: Different fund houses follow different models—some may take more risk than others.
FAQs on multi-asset funds
1. Are multi-asset funds suitable for short-term goals?
Not ideally. Since these funds invest in equities, they may experience ups and downs in the short term. On average, these funds keep over 50 per cent in equities. Hence, they may be volatile in the short term. Short-term market movements may affect returns even with diversification.
2. How often do multi-asset funds rebalance their portfolio?
It varies by fund. Some follow a fixed schedule (monthly or quarterly), while others rebalance based on market conditions or asset class movements.
3. Can I invest in multi-asset funds through SIPs?
Yes. SIPs work well for multi-asset funds as they offer rupee cost averaging and help smooth out returns across asset cycles.
Also read:
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This article was originally published on July 23, 2025.
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