Multi-asset allocation funds lead hybrid category inflows: Why investors are rushing in and what to check

As market leadership continues to shift between equities, gold and debt, investors are increasingly turning to multi-asset allocation funds to diversify their portfolios.

Multi-asset allocation funds have emerged as the top net-selling category among hybrid funds over the last 12 months, attracting ₹70,819 crore in net inflows. The category also recorded strong inflows of ₹4,811 crore in June alone, highlighting sustained investor interest.

Under SEBI’s categorisation norms, multi-asset allocation funds must invest at least 10% of their assets each in a minimum of three asset classes. These can include equities, debt, gold, silver, REITs, and InvITs.

Why are multi-asset allocation funds gaining popularity?

Devender Singhal, Senior Fund Manager at Kotak Mutual Fund, explained, “Multi-asset allocation funds’ growing popularity reflects a key challenge facing investors today: navigating markets where leadership shifts frequently across asset classes and where uncertainty around interest rates, geopolitics and economic growth remains elevated.”

Singhal said that the challenge for investors is no longer simply choosing between equities, gold or fixed income, but deciding when to allocate to each asset class. Multi-asset funds address this issue by combining different asset classes in a single portfolio and rebalancing allocations based on market conditions.

He added that these funds also help investors manage behavioural biases. Investors often find it difficult to book profits when markets are expensive or invest during periods of uncertainty.

“A professionally managed multi-asset portfolio helps remove these emotional biases through a structured allocation framework and periodic rebalancing,” he said.

What should investors check before choosing these funds?

While recent returns can attract investor attention, Singhal said investors should focus on the fund’s investment process and portfolio construction rather than only past performance.

1. Evaluate the asset allocation strategy

“A good multi-asset fund should have a clearly defined framework for allocating capital across various asset classes rather than simply maintaining static exposures,” he said.

Investors should review monthly portfolio disclosures and factsheets to understand whether the fund manager actively changes exposure to equities, debt, gold, real estate or cash depending on market conditions.

2. Assess the quality of diversification

“Investors should examine whether the fund genuinely provides exposure to multiple asset classes that can behave differently across market environments, thereby reducing dependence on a single source of returns,” Singhal explained.

Investors should not assume that all multi-asset funds have similar allocations. They should evaluate the fund’s exposure to equity, debt, gold and other assets.

Within the equity allocation, investors should check exposure across large-cap, mid-cap and small-cap stocks. For the debt component, factors such as credit quality and maturity profile of holdings should also be reviewed.

3. Focus on downside protection

Singhal said the true test of a multi-asset strategy is its performance during volatile markets rather than only during market rallies.

For example, a fund delivering 15% annual returns while falling only 12% during a market correction may be preferable to one earning 18% annually but losing 30% in a downturn.

4. Check upside and downside capture ratios

The upside capture ratio measures a fund’s performance during periods when the benchmark delivers positive returns, while the downside capture ratio measures performance when the benchmark falls.

An upside capture ratio above 100 indicates that the fund has generally outperformed the benchmark during positive market phases. A downside capture ratio below 100 suggests that the fund has fallen less than the benchmark during market declines.

“Ideally, a multi-asset strategy should participate meaningfully in rising markets while limiting losses during corrections. Over long periods, avoiding large drawdowns can be just as important as generating strong returns,” Singhal concluded.