Multi-asset allocation funds have gained traction among Indian investors seeking diversification across equity, debt and gold within a single product. By mandate, these funds invest in at least three asset classes, with a minimum allocation of 10 per cent to each. Within the category, investors face a key choice: Active or passive multi-asset funds.
While both aim to give good returns across market cycles, their approach and outcomes can differ meaningfully.
How active and passive multi-asset funds work
Active multi-asset funds give fund managers the flexibility to change asset allocation and underlying holdings based on market conditions. Passive multi-asset funds, largely structured as fund-of-funds, typically invest in ETFs or index funds and follow predefined allocation rules.
The difference becomes evident during market shifts.
Navy Vijay Ramavat, managing director of Indira Group, points to the contrasting performance of an active multi-asset fund and its passive fund-of-funds counterpart during a commodities rally. The active fund increased exposure to commodities and benefited from the upswing, while the passive fund, constrained by its fixed structure, missed the opportunity and delivered lower returns.
Downside protection versus missed opportunities
Active management has historically helped during periods of stress. Sameer Mathur, managing director and founder of Roinet Solution, recalls the IL&FS crisis and the pre-Covid phase — when several active multi-asset funds sharply reduced equity exposure, shifted to higher-quality debt and increased gold allocation. This helped limit drawdowns and provided smoother recovery once equity markets rebounded, he said.
However, active calls can also cap upside.
Arjun Guha Thakurta, executive director at Anand Rathi Wealth Limited, notes that multi-asset funds reduced equity exposure from around 60 per cent in 2023 to nearly 52 per cent in 2025 as markets turned range-bound. While this helped the category outperform pure equities by 3–4 percentage points over two years, it led to underperformance of 2–3 percentage points versus the Nifty 50 over five- and ten-year periods.
When passive may work better
Passive multi-asset funds can suit investors who prefer predictability.
Mathur said these funds tend to work best in phases where equity, debt and gold deliver modest, range-bound returns and active calls add little value. In such environments, rule-based allocation reduces the risk of wrong timing decisions.
Nilesh D Naik, head of investment products at Share.Market (PhonePe Wealth), adds that the appeal of multi-asset funds, active or passive, often depends on the investor’s involvement. For “invest-and-forget” investors, professional rebalancing and tax-efficient switching within the fund can be a key advantage, provided the allocation framework matches their risk profile.
How investors should evaluate performance
Benchmarking remains a challenge.
Ramavat suggests comparing funds with peers in the same category over long periods rather than relying solely on customised benchmarks. Mathur recommends looking beyond returns to metrics such as maximum drawdown and recovery time after market falls.
Ultimately, the choice reflects investor preference. Active multi-asset funds offer flexibility and potential downside control, but depend heavily on manager decisions. Passive options offer simplicity and discipline, but may lag during sharp market shifts. As Thakurta cautions, investors should be clear about their goals, as multi-asset funds inevitably trade control for convenience.
