Can multi-asset funds offer right mix of risk control and returns?

By diversifying across equities, debt and gold, such funds are gaining traction in a volatile investment landscape

- Jash Kriplani

Multi-asset funds work on the principle that by investing across different asset classes, investors can reduce volatility and optimize their returns, as at least one asset class is likely to do better than others in a given economic cycle. But can multi-asset portfolios work in Indian markets? Here is a look at the numbers.

Past performance In past one-year, amid weakness in stock markets, multi-asset funds as a category delivered average returns of 9.2%. Within the category, some multi-asset funds have delivered higher returns. The Nifty 50 has fetched a little over 2.6% in the same period.

On a five-year rolling basis, multi-asset funds have delivered returns of 13% on average between 21 February 2020 and 21 February 2025. Five-year rolling returns are five-year returns rolled daily between the above-mentioned dates. The same analysis shows such funds have given a maximum 30% five-year returns; the minimum is 1%. The funds showed a standard deviation (measures volatility) of 4% on average.

An analysis by WhiteOak Capital MF of three-year rolling returns between January 2001 and December 2024 showed that a 100% debt portfolio delivered annualized returns of 6.3% on average, with standard deviation of 3%; a sample of 75% debt-25% equity portfolio fetched 3-year rolling returns of 9.3%, with standard deviation of 2.9% and a 60% debt-20% equity-20% gold portfolio delivered returns of 10.2%, with standard deviation of 2.9%.

What about market crashes? An analysis by DSP MF showed amid the covid-19 crisis in 2020, the Nifty TRI (total returns index) showed a maximum drawdown of 38%, while it was 18% for a multi-asset portfolio. TRI reflects index returns from price movement of the index stocks, as well as gains from dividends. As the norms require multi-asset funds to maintain a minimum of 10% each in three asset class, they have different approaches to the asset allocation strategy.