Multi-asset allocation funds outshine peers, drive AUM growth in hybrid category; should you invest?

Multi-asset allocation mutual funds have emerged as the star performers among hybrid schemes, delivering the highest returns over both one-year and three-year periods, according to a recent analysis of fund performance. Market experts say their ability to blend different asset classes has helped balance risk and reward, particularly in the current market environment.

The latest study by Ventura for the quarter ended June 2025 shows a clear shift in investor preference toward hybrid schemes with diversified and low-risk profiles. Arbitrage funds and multi-asset allocation funds topped the charts in terms of asset under management (AUM) growth.

Arbitrage funds posted a 22.2% jump in AUM compared to the March 2025 quarter, while multi-asset allocation funds recorded a 15.4% surge. Balanced Hybrid/Aggressive Hybrid funds rose 8.9%, followed by Equity Savings funds at 8.2% and Dynamic Asset Allocation/Balanced Advantage funds at 8.1%. Conservative Hybrid funds saw the slowest growth at 3.4%.

Industry experts interpret the numbers as a sign that more investors are looking for stability without sacrificing returns. “The performance of arbitrage and multi-asset allocation funds suggests they are a strong alternative for protecting capital while still delivering meaningful gains,” Ventura’s report noted.

What makes Multi-Asset Allocation Funds different

By regulation, multi-asset allocation funds must invest at least 10% each in three or more asset classes. Most maintain exposure to equity, debt, and gold, with some adding international equities, Infrastructure Investment Trusts (InvITs), or Real Estate Investment Trusts (REITs) to further diversify.

This diversification is reflected in broader mutual fund sector allocations. In equity portfolios, private banks continue to dominate with holdings worth Rs 94,029 crore as of June 2025—more than double the second-largest sector, IT-Software, at ₹41,397 crore. The top five sectors—Private Banks, IT, Refineries, Pharmaceuticals, and Telecom—remained unchanged, underscoring investor confidence in these core segments.

Chethan Shenoy, Executive Director & Head – Product & Research at Anand Rathi Wealth Limited, said that while multi-asset funds offer convenience, they may not suit all investors.

“Flexi-cap funds provide diversification across sectors and market caps, whereas multi-asset funds diversify across asset classes in one product. The fund manager controls allocation, so investors lose some flexibility. Relying on a single category can increase concentration risk if that category underperforms. It’s better to diversify further with large-cap, small-cap, and multi-cap funds on the equity side, and use arbitrage or target maturity funds for debt, depending on your tax bracket,” Shenoy advised.

Strong returns

There are currently around 23 multi-asset funds operating in India, eight of which have been in the market for at least three years. The category delivered average returns of 8.12% over the past year and 16.46% over the past three years.

The latest performance data shows that multi-asset allocation funds have delivered strong returns across timeframes, with Quant Multi Asset Allocation Fund – Direct Plan emerging as the clear long-term leader. It tops both the three-year and five-year categories, returning 21.83% and 27.05%, respectively, indicating consistent performance and effective asset mix management. It is followed by ICICI Prudential Multi-Asset Fund at 19.15%. Axis Multi Asset Allocation Fund ranked lowest with 10.70% returns.

Over the one-year horizon, WhiteOak Capital Multi Asset Allocation Fund – Direct Plan leads with a 17.62% return, reflecting agile positioning in the current market cycle. Followed by DSP Multi Asset Allocation Fund at 13.09%. Shriram Multi Asset Allocation Fund was the only scheme to post a negative return, falling 3.14%.

Diversifying assets

The growing popularity of multi-asset allocation funds reflects a broader trend: investors are looking for middle-ground strategies that combine growth potential with capital protection.

In a volatile market, pure equity funds can expose investors to sharp swings, while pure debt funds may underdeliver in terms of returns. Multi-asset allocation funds aim to bridge that gap by spreading investments across uncorrelated asset classes.

The AUM surge in the June quarter suggests this approach is resonating with retail and high-net-worth investors alike. While not without trade-offs, such as reduced investor control over allocation, these funds appear to be well-positioned to navigate shifting market conditions in the months ahead.