Diversification Made Simple: Multi-Asset Allocation Funds and Why UTI's Fund Stands Out

In today's uncertain economic landscape, shaped by fluctuating interest rates, geopolitical uncertainties, and volatile equities, investors seek strategies that balance growth with stability. Multi-asset allocation mutual funds offer a practical solution, providing diversified exposure to equities, debt, commodities like gold, and alternative investments such as REITs or InvITs through a single portfolio. By doing so, they aim to deliver more stable, risk-adjusted returns over the long term, making them increasingly popular. The appeal of this category is evident: assets under management have surged from just ₹10,612 crore in March 2020 to ₹1.42 lakh crore as of August 2025.

- By: Sonal Mittal Senior Vice President - Product UTI MUTUAL FUND

This article explores how multi-asset allocation funds work, the advantages and risks they carry, and takes a closer look at the UTI Multi Asset Allocation Fund.

Understanding Multi-Asset Allocation Mutual Funds

Multi-asset allocation funds are hybrid mutual funds that invest in at least three asset classes, with a minimum allocation of 10% to each, as mandated by the Securities and Exchange Board of India (SEBI). This regulatory framework ensures broader diversification, distinguishing them from traditional balanced funds that typically focus on equities and debt. Common asset classes include:

• Equities: For capital appreciation

• Debt Instruments: For income generation and portfolio stability

• Commodities and Alternatives: Such as gold, silver, REITs, or InvITs, to hedge against inflation and equity downturns.

Most of these funds dynamically adjust allocations based on market conditions, economic indicators, and valuation metrics to optimize returns while managing volatility.

Why investors choose them

The primary allure lies in Diversification, which reduces unsystematic risk by spreading investments across uncorrelated or less-correlated assets. For instance, when equities stutter, gold often appreciates, providing a buffer – as seen during recent market correction from September 2024 to February 2025 when multi-asset funds outperformed pure equity schemes by ~10%. Other benefits include:

• Convenience: Investors gain exposure to multiple assets through a single fund, sparing the hassle of separate investments, tracking and rebalancing.

• Risk Management: These funds typically exhibit lower volatility than equity-heavy portfolios, with standard deviations ~20% below broad market index (BSE 200 TRI) for a 1 year holding period.