Multi-asset allocation funds that invest in a mix of three or more asset classes have been top performers over the past one year, outpacing pure equity funds and surprising many investors, as reported by ET Bureau.
Multi-asset allocation funds have performed well due to their allocation to gold and silver, which have seen a sharp rally during the year. In rupee terms, silver prices have risen 138% over the last one year, while gold has rallied 76%. With most multi-asset funds having a 10–25% exposure to precious metals, they ended up beating equity funds, returning 12.6% over the last one year.
Data from Value Research shows that the multi-asset category has returned an average of 16.1% in the last one year, with the top performer delivering 24%.
In the case of equity-oriented multi-asset funds that invest 65% or more in Indian equities, an investor pays short-term capital gains tax of 20% if held for less than one year and long-term capital gains tax of 12.5% if held for more than one year, with an annual tax exemption of Rs 1.25 lakh.
Non-equity-oriented multi-asset funds that have 35–65% exposure to equities are treated differently. Here, short-term gains are taxed according to the investor’s income slab, while long-term gains are taxed at 12.5% after holding for more than 24 months.
Multi-asset allocation funds are hybrid mutual funds that invest in at least three different asset classes, such as equity, debt, and commodities (gold/silver), with a minimum allocation of 10% to each. In addition, some schemes also invest in international stocks or international fund of funds (FoFs), REITs and InvITs.
Fund managers actively shift allocations across asset classes based on economic outlook, interest rates, and risk-return potential, moving more into debt or gold when they believe equities may underperform and increasing equity exposure during growth phases.