Multi-asset funds surge in popularity with new investors amid tax and diversification benefits

Multi-asset funds are swiftly gaining traction as a preferred choice among new and cautious investors, offering a simplified yet effective route to diversification that spans equities, debt, gold, and other commodities. This growing popularity is largely driven by the funds’ ability to mitigate volatility and spread investment risk across multiple asset classes, providing a ready-made portfolio that caters especially well to beginners wary of market timing or individual stock selection.

R. Sivakumar, Head of Corporate Strategy at Axis Mutual Fund, highlights how these schemes offer newcomers a sense of comfort by reducing risk through diversification. He notes that the emphasis among investors is shifting towards asset allocation rather than chasing individual stocks or thematic plays, a trend underpinned by consistent monthly inflows of Rs 5,000–6,000 crore into multi-asset allocation schemes, even as interest in mid-cap and small-cap funds has cooled following previous sharp gains. These funds typically deliver returns akin to equities but with considerably lower volatility, thanks to their mandated exposure to a blend of equity, fixed income, and gold.

The appeal of multi-asset funds has also been bolstered by changes in tax regulations. With the removal of indexation benefits for traditional debt funds, investors have found multi-asset schemes more tax-efficient, particularly as many of these funds maintain a minimum equity exposure of around 65%, allowing gains to be taxed at favourable equity-oriented rates rather than as debt. This structure, often delivered through fund-of-funds models, facilitates periodic rebalancing and professional management, helping investors navigate various market cycles with disciplinarily balanced allocations.

Several new fund offerings currently available exemplify the growing momentum in this space. Axis Mutual Fund recently launched its Axis Multi-Asset Active Fund of Funds, featuring dynamic allocation across equity, fixed income, gold, and silver. Running until early December with a low minimum investment of Rs 100, the fund employs both quantitative and qualitative indicators, including valuations, macroeconomic data, commodity cycles, sentiment, and geopolitical trends, to guide portfolio rebalancing. The CEO of Axis Mutual Fund, B. Gopkumar, indicated that this product aims to assist retail investors in managing market fluctuations more comfortably, while Chief Investment Officer Ashish Gupta emphasised that disciplined asset allocation remains central to sustainable wealth creation.

The Wealth Company Mutual Fund, part of the Pantomath Group, has similarly launched its Multi Asset Allocation Fund, which actively invests across equities, debt, commodity ETFs, and derivatives. Its approach treats commodities on par with equity and fixed income, providing a balanced exposure that benefits from the stability of debt, inflation-hedging qualities of commodities like gold, and equity growth potential. This fund reopens for continuous transactions after its NFO phase ending in early December and offers investors considerable flexibility to dynamically adjust their asset mix in response to market conditions.

Another noteworthy entry is PGIM India Mutual Fund’s Multi Asset Allocation Fund, which maintains at least 65% equity exposure to qualify for equity taxation and permits the use of derivatives for up to 50% of net assets. With an entry price as low as Rs 10 during the new fund offer, the scheme is designed for long-term investors seeking diversified growth. It adopts a benchmark blending the Nifty 500 TRI, CRISIL Short Term Bond Index, and domestic gold and silver prices, aligning with a hybrid asset allocation strategy. Features such as SIP, SWP, STP, and top-up options enhance investor convenience.

Beyond new launches, broader industry analysis echoes the benefits of multi-asset funds. Reports from financial news sources underscore these schemes’ capacity to deliver competitive returns with moderated risk, offering a well-balanced portfolio that appeals to investors seeking tax efficiency and diversification in one product. Their tax treatment generally depends on their asset allocation, but those maintaining significant equity exposure often enjoy favourable capital gains tax treatment, along with tax-efficient rebalancing strategies embedded within fund structures.

Furthermore, expert insights from asset management firms and financial educators alike stress the importance of professional management and disciplined asset allocation in multi-asset funds. While these funds cannot entirely eliminate market risk, their diversified nature and dynamic allocation practices help cushion downside volatility, offering investors a smoother investment journey compared to standalone equity or debt funds.

In summary, multi-asset funds are redefining retail investment paradigms by blending growth potential with risk management in a simple, accessible format. Their rise is driven by changing investor preferences, evolving tax landscapes, and the convenience of a professionally managed, all-in-one investment solution that takes the guesswork out of asset allocation. As the market evolves, these funds are likely to continue gaining prominence as an essential component of diversified investment portfolios.