Why a Multi-Asset FoF Can Help Investors Stay the Course

Author: Chandresh Bhoraniya, ANAND SECURITIES

Ask most investors which asset class is best and you will get a confident answer, usually based on whatever has done well recently. The data tells a humbler story. Over the past two decades, the leadership among asset classes has often rotated. In 2025, gold rose nearly 75% while equities (Sensex) returned around 13% and bonds (CRISIL Composite Bond Fund Index) about 7%. A year before, the debt index had edged ahead of Sensex. Back in 2011, Sensex fell almost 25% while gold gained more than 30%. There is no reliable way to know in advance which asset will lead and which will lag. This is the simplest argument for diversifying: since you cannot predict the winner, it makes sense to own a bit of each.

Diversification works because different assets respond differently to the same conditions. Equity drives long-term growth but swings sharply along the way. Debt offers relative stability and steadier income, cushioning the portfolio when equity markets turn. Gold and silver can act as a potential hedge against inflation and global uncertainty. Because these asset classes do not move in step, holding them together smooths the overall ride and reduces the dependence on any one outcome.

A fund of funds, or FOF, takes this idea a step further. Rather than buying securities directly, it invests in units of other schemes — active equity funds, active debt funds, and gold or silver ETFs. This adds a second, finer layer of diversification on top of the asset-class split. Within equity, the underlying schemes can span the market cap spectrum, sectors, themes and investment styles. On the debt side, exposure can run across different strategies.

But the hardest part of investing is rarely the strategy. It is the behaviour. Investors know in theory that they should buy low and sell high, yet in practice they tend to do the opposite. When a market is rising, the fear of missing out pulls money in near the top. When it falls, panic drives selling near the bottom. Emotionally-biased decisions can often lead to poor investment decisions. A multi-asset strategy asks the investor to do something especially uncomfortable: to hold gold or debt while equities are outperforming, or to keep faith in equities during difficult periods. At the same time, the diversified mix of the FOF structure aims to make the ride smoother and the decision to stay put easier on the investors.

This is where an actively managed multi-asset FOF can help as it takes the emotional decision out of the investor's hands. The fund manager decides on the rebalancing decisions. Inside the FOF, these internal shifts between schemes happen without triggering a tax event for the investor, so the rebalancing can be done freely. The investor is spared both the temptation to chase performance and the need to time three different markets (equities, debt, commodities) at once.

Diversification comes with no guarantees, and past performance is no promise of what lies ahead. In some years one asset will outpace the blended portfolio. But the point of spreading risks across assets is not to top the table each year; it is to soften the swings, take the pressure off any single call, and keep the investor from acting on impulse at the worst moments. Over a long horizon, that steadiness is frequently what divides the investor who stays the course from the one who gives up halfway.