If you are looking to diversify your portfolio while keeping things simple, multi asset allocation funds could be the answer. These funds invest in a mix of equity, debt, and gold or other commodities, offering a single window solution for diversification in mutual funds. Instead of tracking three separate funds, investors can benefit from a professionally managed portfolio that spreads risk across asset classes. What’s more, these funds are actively rebalanced based on market trends, helping maintain the right asset mix over time.
By combining growth potential (equity), stability (debt), and inflation hedge (gold), multi asset funds aim to smoothen returns through different market cycles making them ideal for long term investors who prefer a balanced, all weather approach.
Diversification Made Simple: One fund gives exposure to equity, debt, and gold.
SEBI Compliant Structure: As per SEBI regulations, multi asset allocation funds must invest in at least three asset classes, with a minimum of 10% allocated to each.
Automatic Rebalancing: Adjusts portfolio based on market conditions.
Suits SIP and SWP Investors: Ideal for both growth and income focused strategies.
Balanced Risk Return Profile: Aims for consistency across market cycles.
Tax Efficient: Internal rebalancing does not trigger capital gains.
Equity, Debt, Gold Why Combine Them
When building a resilient investment portfolio, combining equity, debt, and gold can offer a more balanced risk return profile. Each asset class brings something unique to the table:
Equity aims to generate long term capital appreciation but tends to be volatile in the short term.
Debt instruments provide relatively stable returns and act as a buffer when equity markets face corrections.
Gold serves as a strategic hedge during periods of inflation, currency depreciation, or geopolitical stress.
By blending these assets, multi asset funds help diversify your portfolio, reducing the overall risk without compromising return potential.
SEBI Guidelines for Multi Asset Allocation Funds
To ensure transparency and consistency across mutual fund offerings, SEBI has laid out clear regulations for multi asset allocation funds. As per the SEBI mutual fund categorisation framework:
These funds must invest in at least three different asset classes.
Each asset class must have a minimum allocation of 10% of the fund’s total assets at all times.
Importantly, a multi asset fund cannot be limited to just equity and debt. It must include a third distinct asset such as gold, commodities, or REITs to qualify under this category.
Kotak Multi Asset Allocation Fund: Dynamic Rebalance Explained
The follows a dynamic asset allocation approach, aiming to balance growth, stability, and inflation protection within a single fund.
The fund invests in Equity, Debt & Money Market Instruments, Commodity ETFs and Exchange Traded Commodity Derivatives, with allocations adjusted based on market valuations, interest rate trends, inflation outlook, and other macroeconomic indicators.
During periods of high equity valuations or elevated risk, the fund may reduce equity exposure and increase allocation to other asset classes.
In contrast, when markets offer attractive valuations, the fund may tilt towards equities to capture potential upside.
This fund provides convenience & diversification across asset classes along with the advantage of Equity Taxation.
Using an SWP for Predictable Cash Flows
A Systematic Withdrawal Plan (SWP) from a multi asset allocation fund can help generate regular income while maintaining diversified exposure to equity, debt, and gold.
The diversified portfolio helps offer relatively stable and balanced returns, compared to pure equity oriented schemes.
SWP allows you to withdraw a fixed amount monthly, quarterly, or annually, depending on your cash flow requirements.
It’s ideal for retirees, early retirees, or those seeking passive income, as the fund continues to remain invested and potentially grow.
The multi asset structure can help absorb market shocks better than single asset funds, offering more consistent income over time.
Capital gains from SWP are taxed only on the withdrawn units, not the entire amount.
Long term or short term capital gains taxation will depend on the holding period.
Investors are advised to refer to the latest Kotak Tax Reckoner.
Pros & Cons vs Holding Separate Funds
Pros:
All in One: Single fund offers equity, debt, and gold exposure.
No Manual Rebalancing: Portfolio is adjusted automatically.
Lower Effort & Cost: Saves time and may reduce overall expense ratio.
Tax Efficient: Internal switches don’t trigger capital gains.
Cons:
Less Control: Can’t choose exact asset allocation.
Manager Risk: Outcomes depend on the fund manager’s strategy.
Tax Uniformity: Tax rules depend on the fund’s dominant asset class.
Conclusion
Multi asset allocation funds offer a simplified, all weather investment solution by combining Equity, Debt & Money Market Instruments, Commodity ETFs and Exchange Traded Commodity Derivatives into one professionally managed fund. For investors seeking diversification in without the hassle of tracking multiple schemes or doing manual rebalancing, these funds provide a compelling option. By staying responsive to market cycles and adhering to SEBI regulations, multi asset funds strike a balance between growth, stability, and inflation protection. Whether you are investing via SIP or using an SWP for income, these funds can be tailored to suit different financial goals and risk appetites making them a versatile choice for long term wealth creation.
FAQ
Q1. How are multi asset funds different from hybrid funds
While hybrid fund meaning can vary based on equity debt mix, multi asset funds go further by mandating a third asset like gold or commodities. This broader diversification is a key distinguishing factor.
Q2. Can I use SIPs in multi asset funds
Absolutely, SIP in mutual funds helps average out costs over time and is ideal for disciplined, long term investing in multi asset funds.
Q3. What is the tax treatment of these funds
Gains are taxed based on holding period and fund orientation. Refer to the Kotak Tax Reckoner or consult a tax advisor for details.
Q4. Are multi asset funds suitable for retirement income
Yes, through a Systematic Withdrawal Plan (SWP). A multi asset structure can help deliver stable cash flows by absorbing volatility better than pure equity funds.