In the world of investing, we are often told that higher risk brings higher returns. That is why equity mutual funds are usually seen as the go-to option for wealth creation. But what if you could take relatively moderate risk and still earn strong returns? Most investors would happily choose that path. Interestingly, that’s exactly what multi asset allocation funds have been doing. While investors kept debating between large-cap, mid-cap, flexi-cap and small-cap funds, one category quietly delivered steady and impressive performance — multi asset funds.
Data shows that multi asset allocation funds have outperformed most key diversified equity categories across 1, 3 and 5-year periods. The edge has largely come from one factor: the massive rally in gold over the past three years.
Multi asset vs key equity categories: What the numbers show
Multi asset allocation funds delivered:
20.85% return in 1 year
18.34% CAGR in 3 years
15.42% CAGR in 5 years
Now compare this with major equity categories:
1-year returns comparison
| Category | 1-Year Return (%) |
| Multi Asset Allocation | 20.85 |
| Large Cap | 13.46 |
| Large & Midcap | 12.9 |
| Flexicap | 12.8 |
| Multicap | 13.23 |
| Midcap | 17.56 |
| Smallcap | 10.54 |
| ELSS | 12.01 |
Multi asset funds beat all major diversified categories in the one-year period, including largecaps, flexicaps and even midcaps.
3-year returns comparison
| Category | 3-Year CAGR (%) |
| Multi Asset Allocation | 18.34 |
| Large Cap | 15.79 |
| Large & Midcap | 18 |
| Flexicap | 16.42 |
| Multicap | 18.7 |
| Midcap | 21.76 |
| Smallcap | 19.23 |
| ELSS | 16.32 |
Here too, multi asset funds (18.34%) outperformed largecaps, flexicaps and ELSS, and delivered returns close to multicap funds. Only midcaps and smallcaps clearly stayed ahead.
5-year returns comparison
| Category | 5-Year CAGR (%) |
| Multi Asset Allocation | 15.42 |
| Large Cap | 12.73 |
| Large & Midcap | 15.65 |
| Flexicap | 13.39 |
| Multicap | 16.39 |
| Midcap | 18.74 |
| Smallcap | 19.65 |
| ELSS | 13.99 |
(Source – Value Research)
Over five years, multi asset funds (15.42%) beat largecaps, flexicaps and ELSS. They were marginally behind large & midcap and multicap funds, and trailed midcaps and smallcaps — which naturally carry higher risk.
Gold rally gave multi asset funds a strong push
The biggest contributor to this outperformance has been gold.
Multi asset funds typically invest in a mix of equity, debt and gold. Over the past three years, gold has delivered extraordinary returns, giving this category a strong performance cushion.
Gold performance in last 1 year (Early 2025 – Early 2026)
The past year was exceptional for gold. Gold delivered over 60%–70% returns in 2025 in India, its best annual performance since 1979.
Prices moved from around Rs 76,500 per 10 grams in early 2025 to crossing Rs 1 lakh in April, and eventually surged toward Rs 1.3 lakh–Rs 1.4 lakh by year-end, and Rs 1.7 lakh per 10 grams in early 2026.
The rally was driven by strong central bank buying, geopolitical tensions in the Middle East and the Russia-Ukraine conflict, and a weakening US dollar.
Gold performance in last 3 years (2023–2025)
Gold has delivered approximately 150% total return over three years.
In simple terms, a Rs 1 lakh investment in gold three years ago would now be worth nearly Rs 2.5 lakh.
This consistent and sharp upward movement helped multi asset funds outperform many pure equity categories, especially during phases when equity markets were volatile.
Why investors are looking at multi asset funds
Multi asset funds offer three key advantages:
Built-in diversification – Investors get exposure to equity, debt and gold in a single fund.
Lower volatility compared to pure equity – When equity falls, gold or debt can cushion the fall.
Automatic rebalancing – Fund managers adjust allocation depending on market conditions.
For investors who do not want to actively track and rebalance portfolios themselves, this structure can be convenient.
But there are drawbacks too
Multi asset funds may underperform in a sharp bull run in equities. For example, in the 3- and 5-year periods, midcap and smallcap funds delivered higher returns.
Since a portion of the portfolio is allocated to debt and gold, the fund may not fully participate in equity rallies.
Also, if gold enters a prolonged correction phase, returns from multi asset funds could moderate.
Important: Past returns do not guarantee future performance
While recent numbers look impressive, investors should not assume that similar returns will continue.
Gold’s over 70% surge in one year is unusual and not a regular occurrence. Equity markets also move in cycles. The performance of multi asset funds in the last three years was supported by an extraordinary gold rally. Future returns will depend on how equity markets perform, interest rate trends and the direction of gold prices. Investors should align their choice with risk appetite, time horizon and asset allocation strategy rather than chase recent high returns.
Summing up…
Multi asset funds have emerged as one of the strongest-performing diversified categories in the last 1, 3 and 5 years, beating largecaps, flexicaps and ELSS funds across most time frames. The massive gold rally has given them a decisive edge. However, as always, smart investing means looking beyond recent returns and focusing on long-term goals.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.