Precious metals help multi-asset allocation funds beat returns of diversified equity funds

These hybrid funds invest ma inimum 10 percent in at least three asset classes.

Hybrid multi-asset allocation funds that invest across different asset classes have outperformed diversified equity funds, thanks to a strong showing in precious metals such as gold and silver.

These hybrid funds invest a minimum 10 percent in at least three asset classes — typically, equities, debt and gold. They can also allocate funds towards real estate investment trusts (REITs), infrastructure investment trusts (InvITs) and international equities.

Multi-asset allocation funds follow a dynamic investment strategy, adjusting their asset mix to prevailing market conditions.

Debt instruments are offering attractive yields, as interest rates have peaked and precious metals continue to be a hedge amid global tensions and inflation worries.

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These two factors have played well for multi-asset allocation funds.

Data available with ACE MF, a mutual fund research platform, shows that multi-asset allocation as fund category on average has delivered 9.14 percent on a one-year basis.

Diversified equity funds such as large and midcap, midcap and smallcap funds gained 8.6 percent till June 11.

My precious!

Over the past year, till June 12, the price of gold in dollar terms spiked 44.9 percent and silver 22.59 percent.

Elevated global tensions — Middle East escalation, US–Iran friction and renewed tariff threat — have pushed investors toward precious metals as a shelter during instability.

When it comes to bullion, funds such as Samco Multi Asset Allocation Fund, Sundaram Multi Asset Allocation Fund and Union Multi Asset Allocation Fund are holding at least 20 percent in gold.

Silver, which has also been performing well, has found many takers among fund houses.

Also read | Silver ETF AUM doubles in a year, outpaces gold ETFs despite lower returns

Schemes such as Kotak Multi Asset Allocation Fund and Quant Multi Asset Fund have at least a 10 percent exposure to silver.

Warning from experts

Multi-asset allocation funds may have beaten equity funds' returns but experts have a warning.

Rushabh Desai, founder, Rupee With Rushabh Investment Services, favours balance advantage funds (BAFs) over multi-asset funds, which can swiftly manoeuvre between equity and debt.

"Multi-asset will have multiple asset classes and when you add more asset classes in a product, it leads to cyclicality risk. What if someone takes a higher exposure in gold and the precious metal stagnates and does not perform for a long period of time. If someone wants to invest in a hybrid product, BAF is a better category," Desai said.

Multi-asset funds cannot be considered as a replacement for equity fund purely based on the recent high returns, experts say.

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“Multi-asset schemes also got a kicker because of mark to market gains due to fall in the yields. The rates have come down over the last two-three quarters. So, these funds got that kicker because of the debt component. Equity also recovered and gold and silver have performed well. Purely based on the recent performance of multi-asset, one should not look at it. In an overall portfolio, you can consider a multi asset fund, but definitely not as a replacement of your equity fund,” said Deepak Chhabria, CEO of Axiom Financial Services.

While pure equity investing remains key to long-term wealth creation, multi-asset allocation funds serve as a valuable complement — helping cushion volatility and enhance portfolio resilience. They may not be a universal fit, but in today’s market environment, they offer a compelling mix of growth potential and downside protection.