Over last one-year period, gold ETFs have delivered over 80% returns (as of 4 February), while silver ETFs have delivered over 176% returns. After the recent volatility in gold and silver prices, experts now advise caution.
However, investors who are yet to build exposure to precious metals—especially gold, which acts as a hedge for investment portfolios during periods of uncertainty—and are unsure about the appropriate allocation can consider multi-asset funds. These funds are mandated to allocate a minimum of 10% each to at least three asset classes. Such portfolios typically invest across a wide range of assets, including equities, debt, gold, silver, real estate investment trusts (REITs), and international equities.
Multi-asset funds dynamically move between asset classes depending on the fund manager’s view. Here is how these funds tweaked their allocations recently.
Investment strategy
Recently, some of these funds have tweaked their equity and precious metals allocations based on how these asset classes have performed.
Over the past one year, the category has delivered average returns of 19.36% (as of 3 February). Three- and five-year returns have been 18.26% and 15.63%, respectively. Fund managers say returns from multi-asset funds have been driven by their allocation to precious metals, at a time when domestic equities as an asset class have underperformed.
“We have seen a really sharp rally in precious metals, and most multi-asset allocation funds were able to participate in rally to varying degrees,” Aparna Karnik, fund manager at DSP Mutual Fund, said.
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Most multi-asset allocation funds are now trimming their exposure to precious metals, while some are increasing allocation to equities. “We have done some profit-booking in precious metals. Our net equity allocation is now close to 65% from 50% at the start of last year. Equity as an asset class has not done well, so we are adding exposure there,” Ihab Dalwai, senior fund manager at ICICI Mutual Fund, said. “Small-caps have also not done well, so we are selectively adding there, where we see favourable risk-reward. Quite a few small-caps have corrected 20-30%, so we see opportunities in some of these names. Although, we remain predominantly allocated to large-caps.”
“We have been cautious on equities, but recently have been gradually increasing allocation,” said Dinesh Balachandran, head of investment, SBI Mutual Fund. The fund’s net equity allocation stood at around 40% as of 31 December 2025.
Balachandran explained that while SBI Multi Asset Allocation Fund has been trimming exposure to gold and silver after the sharp rally, it is looking to add allocation in other segments of the commodity basket. “Energy has not yet performed. We still see scope for upside there. We are playing the energy segment through stocks of energy companies,” he pointed out.
Devender Singhal, fund manager at Kotak MF, said that the fund had been overweight on silver at the start of April last year, as gold-silver ratio was at a historic high of 100:1. Demand-supply mismatches, driven by mining disruptions and rising use of silver in new-age industrial applications, were also stacking the odds in favour of a bullish call on the metal. “It was a tactical call which worked in our favour. We have been monitoring our position constantly and have been rebalancing our portfolio regularly,” Singhal said.
Some fund houses stick to their internal limits across asset classes, while allowing some range for deviation before rebalancing portfolio.
“Nippon India Multi Asset Allocation Fund attempts to follow a strategic allocation across four different asset categories. Domestic equity (approximately 50%), international equity (about 20% subject to available limits ), commodities (about15%) and rest in debt with an internal deviation range of 5%. In case of large shifts in any asset class (barring limits, if any, due to regulations) the fund would seek to rebalance the allocation closer to targeted range,” said Ashutosh Bhargava, fund manager and head-equity research, Nippon India Mutual Fund.
Karnik of DSP Mutual Fund said that its investment approach is anchored around a neutral, steady allocation that serves as the portfolio’s base. “Around this anchor, we operate within clearly defined ranges. For instance, domestic equities typically have a lower bound of around 35% and an upper limit of about 50–55%. We do not swing allocations aggressively across extremes; instead, we move within these ranges based on our assessment of valuations, relative attractiveness, and opportunity across asset classes,” she explained.
What should investors do
Investors seeking a less aggressive multi-asset approach can opt for funds with a lower equity allocation and a higher exposure to relatively stable asset classes. While silver may outperform gold in certain phases, its tends to be more volatile than gold. While gold has also been volatile in recent past, historically it has been more stable than silver.
Kavitha Menon, founder of Probitus Wealth, said that most investors struggle to take advantage of market corrections to increase equity exposure. Behavioural biases often hold them back at precisely the wrong time. In a multi-asset fund, however, portfolio rebalancing happens automatically—adding underperforming assets and trimming those that have run up sharply. Crucially, this internal rebalancing does not trigger a tax liability. By contrast, when investors try to rebalance on their own using separate investments, selling any asset typically results in a taxable event, she explains.
“It is not easy to predict when a particular asset class will do well. But meaningful diversification will help an investor participate in at least one asset class that will do well in a given economic cycle,” Menon added.
Aarati Krishnan, head of advisory, Primeinvestor.in, said, “Many investors tend to go overboard on assets which are outperforming, while neglecting those which are lagging. A year ago, most investors were overweight in small-cap funds, a few months ago they switched to international funds, now it is gold and silver ETFs. Multi-asset allocation funds address this problem by enforcing asset allocated portfolios. The funds also take dynamic calls on switching between assets based on fundamental and technical factors, a decision which is extremely difficult for investors to make.”
“Investors should not get too fixated on how the fund’s asset allocation affects its tax status. Investors should look for a multi-asset fund that truly delivers diversification across asset classes and behaves like a genuine multi-asset strategy,” said Kirtan Shah, founder and chief executive officer of Truvanta Wealth.
Tax treatment
The tax treatment of multi-asset funds depends largely on how much they allocate to equities. Funds with at least 65% exposure to equities, including equity arbitrage, are classified as equity funds for tax purposes. In such cases, long-term capital gains are taxed at 12.5% after a holding period of one year. Long-term capital gains up to ₹1.25 lakh are tax-exempt. The short-term gains attract a tax rate of 20%.
Multi-asset funds with equity exposure in the 35–65% range fall into a different tax category. For these funds, long-term capital gains are taxed at 12.5% only after a two-year holding period, and any short-term gains are taxed according to the investor’s applicable income-tax slab.
Takeaways
Multi-asset funds help smoothen portfolio swings by combining asset classes that tend to move differently from one another. For investors who are looking for a one-stop solution for asset diversification, multi-asset funds can be part of the core portfolio. That said, not all multi-asset funds are built the same. Their allocations can vary across domestic equities, debt, gold, silver, international equities, real estate investment trusts, etc. Before investing, it’s important to study both the current allocation and how it has evolved over time. Choose a fund whose risk profile aligns comfortably with your own tolerance for volatility.
