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Multi-asset funds invest in equity, debt, gold and silver. Active funds offer flexibility and higher returns, while passive funds focus on cost efficiency and predictability.
Gold, Silver Rally Boosts Interest in Multi-Asset Funds: Active vs Passive Explained
Multi-asset funds invest across equity, debt, and commodities like gold and silver, so investors get the benefit of diversification in one place. A fund will be called a Multi Asset Allocation Fund only if it invests a minimum 10 per cent each in three asset classes.
Now, the classification of active versus passive multi-asset funds comes to the management style. As the name reflects, an active mutual fund is managed actively by fund managers who make investment decisions and aim to beat the benchmark index. On the other hand, passive mutual funds tend to replicate market performance without any active management. The latter has a lower expense ratio compared to the former.
The interest in multi-asset mutual funds among investors has risen, driven by strong performance by bullion such as gold and silver in 2025, outpacing in terms of returns from equities.
Active Vs Passive: How Decisions Are Made
Active multi-asset funds give fund managers the freedom to take calls based on market conditions. They choose individual stocks and bonds, shift money between equity, debt and gold, and make tactical changes as cycles turn. The approach is largely bottom-up, with managers aiming to add value through security selection and timing.
Passive multi-asset funds take a more structured route. Instead of picking securities, they invest through ETFs or index funds that track predefined asset classes. Fund managers still decide the asset mix and rebalance the portfolio, but they do not actively tweak holdings within each asset class. This makes the approach more top-down and rule-based.
Cost Difference: Not As Wide As It Looks
On the surface, passive multi-asset funds are cheaper. Their average expense ratio is around 0.8 percent, compared with about 1.9 percent for active funds. Lower costs help returns compound better over time.
However, most passive multi-asset funds are funds-of-funds. This means investors also indirectly pay the expense ratios of the underlying ETFs or index funds. Once these costs are added, the gap between active and passive funds narrows.
Costs Matter, But Returns Matter More
While lower costs are always preferable, expense ratio alone should not drive the decision. Active multi-asset funds, despite being slightly more expensive, offer flexibility. Managers can respond quickly to volatility, adjust stock exposure and change allocations when markets shift—something passive funds cannot do.
Active Funds Show Stronger Long-Term Edge
Data across time periods shows active multi-asset funds have delivered higher excess returns than passive funds-of-funds, especially over longer horizons. The difference becomes more visible over five years, where active strategies continue to generate positive alpha, while passive outcomes tend to remain close to benchmarks.
Gold exposure has also supported active fund performance in recent years, particularly during periods of strong gold rallies.
Active multi-asset funds suit investors seeking flexibility, higher return potential and active risk-taking. Passive funds appeal to those who prefer simplicity, predictability and cost efficiency.
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January 06, 2026, 14:51 IST
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