Market volatility rewards diversification as multi-asset funds top return charts

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Market volatility rewards diversification as multi-asset funds top return charts

The surge in precious metals provided multi-asset funds with a key diversification edge as equity markets stayed volatile and debt returns remained subdued.

Published by Somesh | January 17, 2026

As markets oscillated between optimism and uncertainty over the past year, mutual fund strategies that diversified across asset classes emerged as clear winners. Multi-asset mutual fund schemes outperformed both equity-focused and hybrid funds, drawing significant strength from a sharp rally in commodities, especially gold and silver.

By mandate, multi-asset funds invest in at least three asset classes — typically equity, debt, and commodities — with a minimum allocation of 10 per cent to each. This built-in diversification proved crucial during a period marked by volatile equity markets and muted debt returns.

The top 10 multi-asset funds delivered an average compounded annual growth rate (CAGR) of 20.26 per cent over the past year and 21.01 per cent over three years, according to data compiled byThe. In comparison, the top 10 equity-focused funds recorded a CAGR of 16.62 per cent over the past year. Only seven of them posted double-digit returns, and just four managed to outperform the average return of the multi-asset funds. This came at a time when the Sensex rose about 9 per cent in 2025 amid heightened volatility.

Hybrid or balanced funds lagged further behind. The top 10 hybrid schemes delivered an average return of around 9 per cent CAGR over the past year, with only two posting double-digit gains. Only one scheme — ICICI Prudential Equity & Debt Fund Direct Growth — outperformed a multi-asset fund, returning 14.96 per cent compared with UTI Multi Asset Allocation Fund Direct Growth’s 14.54 per cent.

For conservative investors, the contrast was even starker. The State Bank of India’s one-year fixed deposit currently offers an interest rate of 6.25 per cent, following a cumulative 125-basis-point cut in the repo rate by the Reserve Bank of India to 5.25 per cent in 2025.

The diversified structure of multi-asset funds allows fund managers to rebalance portfolios as market conditions evolve, helping smooth returns and reduce overall risk. This flexibility enabled these schemes to capture upside across asset classes while cushioning portfolios against weakness in any single segment. The rally in precious metals proved to be a decisive advantage during a year of equity market turbulence and modest debt returns.

Investor interest has mirrored this performance. Data from the Association of Mutual Funds in India (AMFI) shows multi-asset funds attracted net inflows of Rs 7,425.98 crore in December, second only to exchange-traded fund (ETF) schemes. A similar trend was seen in November. This marks a sharp rise from December 2024, when multi-asset funds recorded net inflows of just Rs 2,574.72 crore, trailing several equity-oriented categories.

The outperformance was driven largely by gold and silver, the strongest-performing asset classes over the past year. Gold prices surged nearly 76 per cent, while silver jumped an extraordinary 168 per cent, according to Multi Commodity Exchange (MCX) data. The rally was fuelled by safe-haven demand amid geopolitical uncertainty and a weakening US dollar. By contrast, benchmark indices such as the Nifty and Sensex gained only about 8–10 per cent.

Among the top-performing multi-asset funds, those with higher exposure to commodities delivered the strongest returns. Nippon India Multi Asset Allocation Fund Direct Growth, for instance, returned over 25 per cent in one year with 17 per cent allocated to commodities. Aditya Birla Sun Life Multi Asset Omni FoF Direct Growth delivered about 24 per cent returns, with commodities accounting for 22 per cent of its portfolio. These schemes primarily invest through gold ETFs and other commodity-linked instruments.

“Multi-asset funds should be viewed as a way to maximise risk-adjusted returns,” said Devender Singhal, fund manager at Kotak Asset Management Company. “Exposure to multiple asset classes significantly reduces market risk. Recent global political and economic volatility has driven strong gains in precious metals, helping these funds outperform equity markets.”

He added that while multi-asset funds could continue to perform well, sustained outperformance over equities will depend on factors such as trade developments, monsoon outcomes, and corporate earnings. “If these remain weak, multi-asset funds could once again deliver superior returns.”