Fund managers rebalance MAAFs after run-ups, so stay invested

New investors should consider them for risk reduction, stability and disciplined allocation, not return-chasing

Multi-asset allocation funds (MAAFs) have outperformed all other hybrid schemes over the past year, with a category average return of 21 per cent. Their assets under management (AUM) rose from Rs 1.04 trillion (January 31, 2025) to Rs 1.75 trillion (January 31, 2026), an increase of 68.3 per cent.

 

Why MAAFs did well

 

MAAFs must invest at least 10 per cent of their portfolio in each of three asset classes, typically equity, debt and gold. Some have exposure to silver as well. The category benefited as gold (up more than 70 per cent) and silver (up more than 140 per cent) posted strong gains, while equity (Sensex up 8.9 per cent) and debt delivered steady returns. 

Diversified allocation captured the upside while reducing single-asset drawdowns. “Many multi-asset funds held meaningful equity exposure during a broad equity rally while also keeping allocations to gold, silver and other commodities that outperformed during bouts of uncertainty,” says Aparna Shanker, chief investment officer (equity) at The Wealth Company Mutual Fund. 

“Gold and silver benefited from global uncertainty and industrial demand. Debt contributed through steady accrual. Healthy domestic flows supported equities,” says Abhishek Tiwari, chief executive officer (CEO), PGIM India Asset Management.

 

Returns may moderate

 

Over the past year, equities, debt, gold and silver rose at the same time. “This is not typical every year,” says Tiwari. Tiwari says investors should expect steadier outcomes over the long term.

 

“Anchoring expectations closer to nominal gross domestic product (GDP) growth of about 8–12 per cent annualised, plus some efficiency gains, is prudent,” says Shanker.

 

Multiple return drivers

 

Built-in diversification across at least three asset classes reduces concentration risk, may lower volatility and make returns smoother.

 

Investors gain exposure to multiple economic drivers, with less reliance on any single market environment. “These funds offer exposure to drivers such as corporate earnings via equities, interest-rate cycles via debt, and global macro and commodity trends via gold and silver,” says Tiwari.

 

Professional rebalancing reduces the scope for emotion-driven decisions. “Investors get regulated exposure to gold, silver and other instruments within a mutual fund wrapper,” says Shanker.

 

Investors have no control over allocation

 

Many investors harbour the myth that diversification leads to higher returns. “Diversification mostly reduces volatility, which can potentially lower returns,” points out Anand K Rathi, co-founder, MIRA Money.

 

Some multi-asset products, especially fund-of-fund structures, can have higher expense ratios than passive or single-asset strategies, which can affect long-term compounding.

 

The fund manager decides the asset allocation. “So, the product may not align with every investor’s specific needs, goals or risk profile,” says Alekh Yadav, head of investment products, Sanctum Wealth. Fund-level shifts can also disrupt an investor’s intended asset allocation at the overall portfolio level.

 

Who should invest in and who should avoid MAAFs?

 

These funds suit investors who want a balanced solution across market cycles without constant monitoring. “Investors seeking a diversified core allocation with equity participation and risk mitigation through debt and commodities can go for them,” says Shanker.

 

Tiwari says they suit first-time investors, moderate-risk investors and long-term savers who value stability.

 

According to Yadav, investors who want to closely monitor and precisely control their asset allocation may not find multi-asset funds suitable.

 

“Investors with a limited time horizon should also avoid these funds because multi-asset investing is not meant for market-timing or fast tactical gains,” says Rathi.

 

Existing investors should stay put

 

Existing investors should avoid overreacting to the strong run-up. “After a strong year, fund managers typically rebalance and trim overweight exposures, so remain calm and stay invested,” says Rathi.

 

But expectations need to be reset. “The strong performance seen in the past may not be replicated going forward,” says Yadav.

 

New investors: enter for right reasons

 

New investors should not enter these funds based only on last year’s returns. “The past year’s returns were boosted by a rare combination of events, including an exceptional rally in gold, which may not be repeated every year,” says Rathi. He adds that only investors who seek risk reduction, stability and disciplined allocation may consider these funds.

 

Such investors should enter via systematic investment plans (SIPs) with a horizon of five to seven years.