Diversification pays: Gold boost, tax edge help multi-asset funds outperform equities, debt in 2025

Multi-asset allocation mutual funds have emerged as the standout performers among funds launched in 2024 and carried that momentum into 2025, as volatile markets rewarded diversification over concentrated bets. With equities facing periodic corrections, debt returns staying modest and commodities delivering outsized gains, balanced portfolios proved far more resilient than single-asset strategies. The uneven performance across asset classes reinforced a simple lesson for investors: asset allocation mattered more than asset selection.

The strength of multi-asset funds lies in their ability to flexibly combine equities, debt and commodities within a single structure. In 2025, this flexibility paid off handsomely. Equities moved largely sideways with sharp internal rotations, fixed income delivered predictable but limited accrual returns, while gold and silver posted exceptional gains. Even relatively small allocations to precious metals significantly lifted overall portfolio performance, helping many multi-asset funds outperform peers across categories.

According to Niharika Tripathi, Head of Products & Research at Wealthy.in, gold and silver turned out to be the decisive contributors this year. Silver rallied sharply in India, at times nearing triple-digit gains, while gold delivered strong double-digit returns in rupee terms, supported by central-bank buying, geopolitical risks and expectations of global rate cuts.

Funds with metal exposure closer to the upper end of the permitted range, around 15–20%, generally outperformed those with lower allocations. In several cases, gains from bullion more than offset muted equity returns and base-level debt yields.

Taxation angle

Another structural tailwind for multi-asset funds has been taxation. Changes in 2023 and 2024 reduced the appeal of traditional debt funds by removing indexation benefits, pushing investors to look for alternatives. Multi-asset funds quietly filled this gap. Many now hold 30–45% in high-quality debt instruments such as government securities, corporate bonds and money-market assets, while maintaining equity exposure above the threshold required for equity taxation, often using derivatives. This allows investors to retain meaningful fixed-income exposure without facing slab-rate taxation.

This structure solves multiple challenges at once: tax efficiency, behavioural comfort and automatic rebalancing. For many affluent and high-net-worth investors, multi-asset funds have become a practical way to hold 10–15 percentage points of debt within a growth-oriented portfolio, without reverting to pure debt products.

Dynamic multi-asset funds further differentiate themselves by adjusting exposures across market phases. In bull markets, they keep equity exposure high but may hedge selectively when valuations look stretched. During risk-off periods, they reduce net equity, lean on gold and silver as hedges, and rely on debt for stability, resulting in shallower drawdowns than pure equity funds.

In sideways markets, seen frequently in 2025, they benefit from steady debt carry, tactical equity adjustments and the asymmetric behaviour of precious metals, producing smoother return paths.

Top 10 multi-asset funds in 2025

TOP 10 funds by returns (As of Dec 26, 2025)

RANK | FUND NAME                                       | 1 MONTH (%) | 6 MONTHS (%) | 1 YEAR (%)
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1    | Kotak Multi Asset Allocation Fund – Direct     | 6.68        | 19.35        | 23.32
2    | Edelweiss Multi Asset Omni FoF – Direct        | 5.61        | 13.33        | 24.26
3    | 360 ONE Multi Asset Allocation Fund – Direct   | 5.64        | --           | --
4    | ABSL Multi-Asset Omni FoF – Direct             | 5.29        | --           | --
5    | ABSL Multi-Asset Passive FoF – Direct          | 4.84        | 14.57        | 23.99
6    | Union Multi Asset Allocation Fund – Direct     | 4.30        | 13.27        | 21.20
7    | Bandhan Multi Asset Allocation Fund – Direct   | 4.17        | 12.52        | 20.75
8    | Nippon India Multi Asset Allocation Fund – Direct| 3.26      | 13.69        | 22.62
9    | HSBC Multi Asset Active FoF – Direct           | 3.15        | 10.71        | 20.31
10   | Quant Multi Asset Allocation Fund – Direct     | 3.05        | 12.39        | 20.80

Outlook 2026

Looking ahead to 2025–26, multi-asset funds are increasingly being viewed as core portfolio holdings rather than tactical add-ons. A 20–40% allocation can act as a stable anchor, simplifying portfolio construction while delivering consistent, risk-adjusted returns. They may not top performance charts in strong bull runs, but their ability to limit downside and compound steadily makes them attractive in uncertain environments.

They are also well-suited for systematic withdrawal plans and retirement strategies, blending growth, stability and hedging in one vehicle. That said, investors should remember these remain equity-risk products and are best suited for long-term goals.

Across investor profiles—from beginners to aggressive investors and retirees—multi-asset funds are steadily carving out a central role, reflecting a broader shift toward disciplined diversification and smoother compounding.