Multi-Asset Funds: What worked in 2025 and what to do in 2026

multi-asset funds

In 2025, multi-asset funds delivered notable outcomes despite volatile and sideways-moving equity markets. While equities struggled, fixed income provided steady accrual, and a modest 10–15% allocation to gold and silver often became the decisive factor in returns, helping some funds outperform peers.

In fact, multi-asset funds as a category has given returns of over 16%, while large, mid and small cap funds have returned 8.17%, 2.76% and -5.31% respectively over the past one year.

Looking ahead, 2026 will require dynamic allocation, with fund managers likely adjusting exposures across quality equities, debt, metals, and global assets.

Multi-Asset Funds: 2025 Performance Snapshot

“In 2025, multi-asset allocation funds navigated a challenging environment where Indian equity markets experienced significant volatility and flat to modest performance,” says Soumya Sarkar, Co-founder of Wealth Redefine, a mutual fund distributor.

Equity markets spent long stretches moving sideways at the index level, even as there were sharp internal rotations across sectors and market caps. Fixed income, meanwhile, delivered largely what was expected—steady accrual with limited but selective mark-to-market support.

How Multi-Asset Funds Outperformed In 2025

Against this backdrop, gold and silver ended up playing a far more decisive role than their portfolio weights would typically suggest. “Precious metals benefited from a combination of global uncertainty, changing interest-rate expectations, central-bank demand and currency dynamics. As a result, even a 10–15% allocation to metals materially influenced one-year outcomes for many funds,” says Niharika Tripathi, Head of Products & Research, Wealthy.in, a wealth management platform.

In several cases, bullion exposure compensated for muted equity returns and largely accrual-driven debt portfolios. This helps explain the unusually wide dispersion seen across multi-asset funds in 2025. Schemes operating closer to the upper end of their permitted commodity allocation generally outperformed peers that remained closer to the minimum. “In a year where neither equity nor debt delivered decisive leadership, metals effectively became the swing factor for short-term performance within the category,” says Tripathi.

Here, one needs to understand that multi-asset funds are of two types, active and passive.

Active multi-asset funds are professionally managed by fund managers. They dynamically allocate between equity, debt, gold, and other asset classes. The portfolio is actively rebalanced based on market outlook, aiming for better risk-adjusted returns.

On the other hand, passive multi-asset funds track the performance of a specific market indices (e.g., set weights to equity, debt, gold). Rebalancing happens systematically, offering lower cost, high transparency, and minimal manager intervention.

Diversification in Action: Managing Volatility

“For many investors, multi-asset funds are becoming core holdings. They suit investors who want equity-style taxation with lower volatility—such as first-time equity investors, retirees, conservative HNIs, and busy professionals who prefer a managed, rebalanced approach,” says Amit Suri, Mutual Fund, Distributor & Founder of AUM Wealth.

Historical performance shows that multi-asset funds have often managed to limit drawdowns compared to pure equity or debt funds, thereby offering investors a smoother investment journey. They have attracted significant inflows (Rs 13,000 crore in three months in India alone), underscoring growing investor confidence. This success could be attributable to balanced exposure rather than luck with one asset, reflecting thoughtful investment strategies that smooth returns and preserve capital in volatile conditions.

2026 Outlook: Multi-Asset Fund Expectations

Return drivers will likely shift in 2026 as market dynamics change. Here's what to expect.

Equity's role may strengthen: Markets are expected to recover from 2025's consolidation phase, with earnings projected to grow 17-18% and a potential rally from mid-2026 onward. “If equity breadth remains narrow (limited to few sectors), multi-asset funds will focus on quality large caps in financials, auto, and real estate rather than broad market exposure. Dynamic allocation becomes critical,” says Sarkar.

With FII flows reversing after heavy outflows and corporate earnings stabilizing, fund managers will actively rotate between assets. During narrow equity markets, they'll reduce small/mid-cap exposure and increase allocation to debt, gold, and international equity.

Risks and Rewards: Planning for the Year Ahead

“The main risk is a sharp equity rally, where multi-asset funds may lag pure equity strategies. Another risk is incorrect asset-allocation calls. Investors should view short-term underperformance as the trade-off for downside protection and judge these funds over full market cycles, not single years,” says Suri.

“If equity, debt, and gold all underperform together during severe market stress, diversification benefits diminish significantly,” says Sarkar.

Adding to the uncertainty, ongoing global trade tensions, such as US-India disputes or tariff uncertainties, could put pressure on equity valuations and currency stability, affecting returns across multiple asset classes. Interest rate volatility is another concern: although the RBI is expected to ease rates modestly, unexpected spikes in inflation, particularly food inflation, could keep rates elevated, negatively impacting both equity and debt components of portfolios.

Finally, currency depreciation remains a potential headwind, as a weaker rupee against the dollar could inflate import costs and reduce real returns, especially for commodity allocations, further challenging multi-asset fund performance.

Don't panic during 12-18 month underperformance periods—this is normal. Multi-asset funds are designed for stability, not maximum returns. They may lag pure equity funds during bull markets but should cushion downturns better. “Evaluate performance over full three to five year market cycles rather than quarterly returns. Compare against the fund's stated benchmark (typically a mix of equity, debt, and gold indices), not pure equity indices. Persistent underperformance beyond market cycles warrants fund review or rebalancing,” says Sarkar.