Multi-asset funds: Invest for diversified portfolio, tax-smart rebalancing

Multi-asset allocation funds offer diversification across equities, debt and commodities with tax-efficient rebalancing, but they can lag pure equity funds during strong bull markets, experts say

Multi-asset allocation funds (MAAF) have risen considerably in performance rankings as well as investor mindshare. Over the past year, these schemes have delivered an average return of 12.8 per cent, sharply outperforming the 2.9 per cent generated by flexicap funds over the same period. The MAAF category has also attracted substantial inflows of about Rs 28,294 crore so far in FY2026, compared to about Rs 34,785 crore in FY2025, reflecting heightened investor interest.

 

“Investor interest in MAAFs has risen because they offer a structured way to diversify across equities, debt, commodities, and in some cases, even international assets, within a single product. In an environment where asset-class leadership keeps rotating, MAAFs provide a less volatile journey,” says Chintan Haria, principal – investment strategy, ICICI Prudential Asset Management Company (AMC).

 

New fund offers (NFOs) of Axis Multi-Asset Active Fund of Fund (FOF), PGIM India Multi Asset Allocation Fund and The Wealth Company Multi Asset Allocation Fund are currently open for subscription. These schemes can be particularly useful for individuals who desire broad-based exposure across asset classes but may not have the expertise or access to professional guidance required to determine the optimal allocation mix on their own.

 

How do MAAFs diversify across asset classes?

 

MAAFs offer a diversified investment framework by allocating a minimum of 10 per cent each to three core asset classes: equities, debt, and commodities. Within their equity exposure, several fund houses additionally invest in foreign stocks and exchange-traded funds (ETFs) that track overseas indices, thereby widening the scope for diversification. Asset allocation bands vary across fund houses. In fund-of-funds (FOFs), diversification is achieved by investing in units of other mutual fund schemes, while traditional MAAFs invest directly in securities.

 

“Equities, debt and commodities don’t do well all at the same time. They provide a good hedge against each other. This has come out very clearly in the past one-and-a-half years, where debt and bullion like gold and silver have done much better than equities,” says Rahul Singh, chief investment officer (CIO) – equities, Tata Asset Management. 

 

“Over the past few years, investors have increasingly recognised that no single asset class consistently outperforms across cycles. MAAFs provide a convenient solution by offering exposure to equity, debt and gold within a single portfolio, thereby helping investors navigate varied market environments,” says Vaibhav Shah, head – products, business strategy and international business, Mirae Asset Investment Managers (India).

 

Why are MAAFs considered tax-efficient?

 

A key advantage of MAAFs lies in their dynamic rebalancing capability. Fund managers shift allocations across asset classes within regulatory limits. These internal reallocations do not trigger tax liabilities for investors — unlike similar shifts done by individuals. “MAAFs are very tax-efficient, as they give you participation in multiple asset classes with rebalancing based on market conditions in a tax-efficient manner,” says Shah.

 

When might MAAFs disappoint investors?

 

MAAFs may not always lead performance charts, particularly during strong equity rallies. “Return potential during strong equity bull phases may be relatively lower than that of pure equity funds due to exposure to debt and gold. Tactical allocation strategies may face periods of underperformance if market trends shift abruptly,” says Shah.

 

Haria, too, adds that these funds may lag fully invested equity funds in a bull market due to their exposure to various asset classes.

 

“Risks include market volatility across all asset classes, interest-rate sensitivity in debt, and commodity-price fluctuations,” says Rohit Mattoo, national head – retail sales, Axis Mutual Fund.

 

How long should investors hold MAAFs?

 

MAAFs tend to be most effective when held through full market cycles. “The ideal time frame is typically five years or more. The product is designed for long-term asset allocation and not for short-term tactical bets,” says Singh.

 

“Ideally, one can allocate about 10–20 per cent of their portfolio to these funds,” says Mattoo.

 

The writer is a Gurugram-based independent journalist