Multi-Asset Allocation Funds: What Inflows Reveal About Investor Behaviour

The data released by the Association of Mutual Funds in India reveals that the net inflows into multi-asset allocation funds have surged 3.9x since January last year. These mutual funds reported over Rs 10,485 crore worth of net inflow in January 2026, 41% higher than the previous month.

Moreover, the multi-asset allocation funds accounted for 60% of the total inflows of the hybrid fund category in January 2026. Multi-asset allocation funds topped inflows within the hybrid segment for the third consecutive month, highlighting sustained investor preference for diversified strategies.

The net AUM of these funds, as a result, and due to mark-to-market gains, has increased to about Rs 1.75 lakh crore as of January 2026, 68% higher than January last year.

So, what's driving the inflow into these funds?

Well, a variety of factors...

• The uncertain and volatile environment making investors averse to taking exposure to a single asset class.
• The fact that the return on Indian equities (Nifty 50) has slowed.
• The stellar rise in price of gold and silver, and investors unwilling to miss the bus.
• The desire to diversify across asset classes — equity, debt, and precious metals (gold and silver).
• The hope that a multi-asset approach shall help add stability and manage risk better.
• The reality that the average returns of multi-asset allocation funds over the last one year, three years and five years were better than even the large-cap funds, and at a lower risk.
• Tax efficiency: Despite being classified as hybrid, multi-asset allocation funds maintain around 65% exposure to equities, making them a tax-efficient option.

In other words, investors seem to have adopted a measured and tactical approach.

Performance of Multi-Asset Allocation Funds v/s Other Funds

Moreover, going by the historical returns, it has proved quite rewarding for investors.

The table above shows that, on average, multi-asset allocation funds have outperformed the large-cap funds, the aggressive hybrid funds, and the balanced advantage fund (also known as dynamic asset allocation funds), as well as the BSE 100 - TRI by a respectable margin across time frames. And when you hold these funds for the long-term, the compounded average growth rate is even better.

Over three years and five years, a 19.8% CAGR and 17.0% CAGR (as of February 11, 2026) are rather enticing and too good to miss.

Moreover, the multi-asset allocation funds have exposed investors to less risk (as indicated by the standard deviation), and the risk-adjusted returns (as denoted by the sharpe ratio) have been far more rewarding than some other funds.

In times when equities have disappointed or slowed on returns, such as in 2016, 2018, 2022, 2024, and 2025 in the last 10 years, the stunning returns clocked by gold and/or silver have proved supportive for multi-asset allocation funds.

In the case of silver, which is generally more volatile than gold, the unprecedented super-rally of the last couple of years, particularly after 2022, has helped push the long-term average returns of multi-asset allocation funds. It is such returns and the mandate of multi-asset allocation funds that have attracted investors.

The regulatory guidelines mandate a minimum allocation of 10% allocation each in equity, debt, and gold. But other than this, today, quite a few multi-asset allocation funds also have exposure to derivatives, REITs & InvITs, silver, and overseas equities. The objective of these funds is to generate modest capital appreciation/income by investing in a diversified portfolio of low-correlated assets.

However, there is no assurance or guarantee that the investment objective of the fund will be achieved.

What Investors Need to Watch Out For

You see, just because a fund invests in multi-assets, don't assume the risk exposure is low. It depends on how the fund is allocating its assets and the proportion of those assets. To enjoy a favourable tax status, a majority of these funds hold a dominant portion in equities most times. This classifies them as high-to-very high on the risk-o-meter.

The prevailing backdrop due to Trump 2.0 protectionist policies, tariff tantrums, trade wars, the US' increasing interventionism in the affairs of other countries, and looming geopolitical tensions, makes multi-asset allocation funds a meaningful choice to tactically invest across asset classes, but the returns you expect also need to be rational.

Do note that for every level of return you seek, there is risk involved. And as Benjamin Graham (the father of value investing and Warren Buffett's mentor) states: "The essence of investment management is the management of risks, not the management of returns."

It is not always true that high risk translates into high returns, more so in the short-term.

Also, historical returns are not necessarily indicative of future returns. Keep in mind, every asset has its cycle of ups and downs. The returns you make would closely hinge on how the underlying assets perform and how adeptly the fund manager invests across asset classes.

How to Approach Multi-Asset Allocation Funds

A multi-asset allocation fund can form a part of your core mutual fund portfolio. It provides tactical allocation across asset classes.

That being said, at a time when equities are rather volatile and gold and silver are near their all-time highs, taking the systematic-investment-plan route to invest in multi-asset allocation funds makes more sense, as opposed to making a lump sum investment.

With the inherent rupee-cost averaging feature of SIP, you would be able to manage the risk better and potentially compound wealth over the long run. Ideally, keep an investment of around three–five years and a high-risk appetite when investing in multi-asset allocation funds.

Finally, don't choose a multi-asset allocation fund because everyone is investing in it, or it is the best fund out there. Consider it only if it aligns well with your overall risk profile, the broader investment objective, the financial goal/s you are addressing, and the time to achieve the envisioned goals.

A sensible approach will be in the interest of financial well-being.

Happy investing.

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.

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