Funds that have quietly cashed in on the gold & silver rush

Summary: While you were watching equity markets, some mutual funds quietly rode a gold and silver rally. And they weren’t gold or silver funds only. These hybrid funds, by design, had an edge. So, let’s find out which hybrid funds have quietly and confidently rode the gold and silver wave.

Gold and silver aren’t just heirloom items anymore. In recent years, they have been giving India’s small- and mid-cap funds a run for their money. In the last three years, gold funds have delivered 23.1 per cent, while silver funds have shone brighter with 26.2 per cent returns. That’s almost in the same league as small-cap funds (23.76 per cent) and mid-cap funds (23.19 per cent).

But there’s another category that quietly capitalised on this commodities boom: multi-asset allocation funds (MAAFs).

What are MAAFs?

Multi-asset allocation funds (MAAFs) are a type of hybrid mutual fund that must invest in at least three different asset classes, like equity, debt, real estate and commodities like gold or silver.

Unlike traditional hybrid funds that invest in stocks and debt, MAAFs are mandated by SEBI to hold at least 10 per cent in three asset classes.

It’s this added flexibility — especially the ability to invest meaningfully in commodities — that has given MAAFs a distinct edge in the last three years.

With gold and silver delivering stellar returns over the past three years, it’s only natural to expect that MAAFs with higher commodity exposure would have quietly benefited from the rally.

But did they? Let’s find out. 

The top commodity riders

Only eight multi-asset allocation funds have a track record of over three years. Among them, all except Tata’s scheme had a meaningful allocation to commodities over this period.

The pattern is hard to miss: the top three funds in terms of gold and silver exposure, Quant, Nippon India and UTI, are also among the top performers.

Quant takes the crown on both counts: the highest commodity allocation and the best three-year return. To put that in perspective, its 24.2 per cent return places it firmly among the top performers, even when compared with more diversified pure-equity categories like flexi-cap funds.

The schemes from Nippon India and UTI, which have had the second and third highest exposure to commodities in the last three years, were the third and fourth best performers, respectively.

The only outlier in this trend is ICICI Prudential’s MAAF. Despite slightly lower commodity exposure, it managed to deliver the second-highest returns, likely on the strength of its equity selection and allocation strategy. Incidentally, it also happens to be the largest fund in this category.

And what about Tata MAAF, which had the lowest average exposure to gold and silver? Unsurprisingly, it came second-last in terms of performance, only ahead of Axis Multi Asset Allocation Fund.

We spotted another anomaly while poring through the data. Samco’s newly launched MAAF (just seven months old) is in a league of its own. With 43 per cent of its assets in commodities, it easily dwarfs its peers on commodity exposure. And while it's very early to pass judgement, the fund’s 17 per cent return in just 6 months makes a bold first impression.

Should you consider MAAFs?

Unlike equity funds or even many hybrid funds, multi-asset allocation funds are required to diversify, at least 10 per cent each in equity, debt and another asset class (typically gold or silver). This structural diversification acts as a shock absorber during volatile times and gives them the flexibility to benefit from non-equity rallies, like the one we’ve seen in gold and silver.

Our take

MAAFs are like the all-weather tyres of your portfolio.

• In volatile or bearish markets, they tend to hold up better than pure equity funds, thanks to lower equity exposure and allocation to other asset classes like debt and gold.
• However, in bull markets, they underperform equity-heavy funds, sometimes by a wide margin. You can check their performance in recent years in this article.

So, should you invest?

If your goal is stability, automatic diversification and need some downside protection, consider allocating a small portion of your portfolio to MAAFs.

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