Gold, debt and stocks: Why multi-asset funds are the smartest play

Economic Times

10-05-2025

So, What Exactly Is a Multi-Asset Allocation Fund?
Live Events
Why Is This Category Becoming More Popular in 2025?
1. Equities Are Volatile, Not Cheap
2. Debt Has Stabilised, But Yields Are Capped
3. Gold Is Quietly Doing Its Job
4. The New Investing Generation Wants Simplicity
How Much Do These Funds Allocate?
Equity allocations in MAAFs range from just over 20% (for conservative models) to 70% or more (for aggressive growth strategies).
Debt allocations vary just as much — from under 10% in some funds to over 50% in others.
Gold or alternative assets (like international equity or REITs) often make up 5–20%, depending on the fund's objective.
What About Tax Efficiency?
Are There Risks?
Manager's skill matters: In dynamically allocated funds, poor asset calls can hurt performance. The fund's success depends on how well the managers read macro signals.
Asset class caps: Some funds may be constrained by internal rules or SEBI mandates, limiting flexibility.
Lag in aggressive markets: In a bull run, a MAAF may underperform a 100% equity fund, simply because it's holding debt or gold for protection.
What Makes a Good MAAF?
Have a clear asset allocation framework (and communicate it transparently)
Show a track record of navigating both bull and bear markets
Include exposure to non-traditional assets (like global equities or REITs) for added diversification
Deliver consistency, even if not the highest headline returns
Final Thoughts: Balance is the New Alpha
In 2025, Indian investors are standing at an inflexion point. Equity valuations are running high, debt yields have started to flatten, and gold is no longer just a cultural asset — it's a strategic one. In this environment, the conventional wisdom of 'just stay in equities' is being challenged. And a quiet category of mutual funds — multi-asset allocation funds (MAAFs) — is starting to shine.These are not the flashy, high-return funds that dominate social media. But for investors who care about stability, resilience, and a smoother investing experience, multi-asset allocation funds may be one of the smartest decisions in today's cycle.Put simply, it's a mutual fund that spreads your money across at least three different asset classes — typically equity, debt, and gold. Some mutual funds even extend their reach by providing exposure to international equities, REITs (Real Estate Investment Trusts), or InvITs (Infrastructure Investment Trusts).Think of it as a pre-assembled portfolio managed by professionals. Instead of juggling different funds for equity growth, debt stability, and gold protection, a MAAF wraps them all into one. That means fewer decisions, less panic during market dips, and a built-in diversification engine.The rise of MAAFs isn't random. It's being driven by a combination of market volatility, macro uncertainty, and maturing investor behavior.Indian equity markets have delivered handsome returns over the past few years. But valuations have reached multi-year highs in several sectors. That doesn't mean a crash is coming, but it does suggest that the next few years might see slower, bumpier growth.After a period of rising interest rates, most debt instruments have stabilised. Yields are no longer falling, but they're not expected to rise significantly either. Debt, therefore, becomes a useful anchor — it adds predictability without dragging too much on returns.Gold has done what it always does in times of macro uncertainty — protect capital. With geopolitical risks, shifting interest rate policies in the West, and inflation still a concern, gold adds a meaningful hedge against sharp equity corrections.Today's investors are not just looking for alpha (market-beating returns) — they're looking for clarity, peace of mind, and consistency. MAAFs simplify portfolio management and reduce decision fatigue, especially for those who are just starting or want to automate their investing journey.The point is: no two MAAFs are alike. Their design depends on the fund house's philosophy, the target risk level, and the market outlook.Here's a lesser-known advantage: you don't pay capital gains tax when the fund switches between asset classes internally.If an investor manually switches between, say, a debt fund and a gold ETF, each move triggers a taxable event. However, in a Mutual Asset Allocation Fund (MAAF), the fund manages this rebalancing, which doesn't impact the investor's tax bill unless they sell the entire fund.This makes MAAFs more efficient for long-term investors who want asset allocation without tax leakage every time markets shift.Yes — but they're manageable and largely known.But these are trade-offs for a smoother ride — and often, that's precisely what investors want today.There's no one-size-fits-all answer. But a solid MAAF will typically:In an era of algorithmic trades, viral stock picks, and economic headwinds, the idea of 'playing it safe' has often been dismissed as boring. But in 2025, boring looks brilliant.Multi-asset allocation funds aren't about chasing the next 30% return. They're about reducing regret, managing risk, and staying invested without second-guessing every market turn. For long-term wealth building, that's often the difference between good plans and great outcomes.These funds may not make you rich overnight, but they could make you a more confident investor over time. And that might just be the smartest investment you make this year.The author Chakravarthy V. is Cofounder & Executive Director, Prime Wealth Finserv. Views are own): Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)