Building a balanced investment portfolio often feels like a full-time job. You have to monitor the stock market for growth, track interest rates for your debt instruments, and keep an eye on geopolitical tensions that might drive up the price of gold. It is exhausting, isn’t it? Most investors know the golden rule: “Don’t put all your eggs in one basket.” However, actually managing that basket is where the challenge lies. This is exactly where Multi-Asset FoFs come into the picture.
- What Are Fund of Funds and How Do They Work
- Why Multi-Asset FoFs Are Gaining Popularity
- Key Reasons Investors Prefer Multi-Asset FoFs
- How Multi-Asset Funds Outperformed In 2025
- Top Multi-Asset FoFs
- Why Asset Management Companies Prefer FoFs
- Tax Table for FY 2025–2026
- Multi-Asset FoFs Compared With Direct Funds and ETFs
- What Are the Drawbacks of Multi-Asset FoFs?
- Who Should Consider Investing in Multi-Asset FoFs?
- How to Choose the Right Multi-Asset FoF
- The Bottomline
- FAQs
Imagine if you could hire a professional to do all that heavy lifting for you, balancing your risks and rewards across different assets within a single account. That is exactly what a Multi-Asset Allocation Fund does. In this guide, we will break down how these versatile all in one funds work and why they are becoming a cornerstone for Indian investors in 2026.
What Are Fund of Funds and How Do They Work
Fund of Funds, commonly known as FoFs, are mutual funds that invest in other mutual funds rather than directly buying stocks or bonds. The fund manager focuses on selecting and allocating across suitable underlying schemes.
In the case of Multi-Asset FoFs, the underlying funds usually include equity funds, debt funds and gold or commodity based funds. Investors get exposure to multiple asset classes through one investment.
FoFs can be suitable for investors who value simplicity, diversification and professional oversight.
(Source: Investopedia)
Why Multi-Asset FoFs Are Gaining Popularity
Multi-Asset FoFs are designed to balance risk and returns across different market conditions. Each asset class plays a specific role.
- Equity supports long term growth
- Debt provides stability and income
- Gold or silver acts as a hedge during inflation and economic uncertainty
- International equity where permitted adds global diversification and reduces reliance on domestic markets.
Note: Not all Multi-Asset FoFs invest in global markets.
By combining these assets, Multi-Asset FoFs aim to reduce portfolio volatility while maintaining reasonable growth potential.
(Source: Business Today)
Key Reasons Investors Prefer Multi-Asset FoFs
- Built in diversification reduces dependence on a single asset class
- Smoother return profile during volatile markets
- One fund solution instead of managing three or more funds
- Can be suitable for medium to long term financial goals
How Multi-Asset Funds Outperformed In 2025
| Fund Category | Average 2025 Return (YTD) |
|---|---|
| Multi-Asset Fund | 17.00% |
| Large-Cap Fund | 8.17% |
| Mid-Cap Fund | 2.76% |
| Small-Cap Fund | -5.31% |
(Source: Moneycontrol)
Top Multi-Asset FoFs
| Rank | Fund Name | 1 Year Return | Expense Ratio | Key Asset Mix |
|---|---|---|---|---|
| 1 | Edelweiss Multi-Asset FoF | 25.25% | 0.40% | International Equity, Domestic Equity, Debt and Gold |
| 2 | Kotak Multi-Asset FoF | 24.36% | 0.31% | Domestic Equity, Gold ETF, Debt and Global Feeder Funds |
| 3 | Bandhan Multi-Asset Passive FoF | 21.11% | 0.48% | Nifty 50, Liquid Funds, Gold and Silver ETF |
| 4 | Nippon India Multi-Asset Omni FoF | 21.04% | 0.27% | Equity Funds, Debt Funds and Commodity ETF |
| 5 | HDFC Multi-Asset Active FoF | 17.28% | 0.07% | Active Equity Schemes, Debt and Gold ETF |
Note: Returns are past performance and do not guarantee future returns. Expense ratios and asset allocation may change over time. And the returns are as of Jan 12, 2026
(Source: Value Research)
Why Asset Management Companies Prefer FoFs
From a business perspective, FoFs offer flexibility to fund houses. Unlike traditional mutual fund categories, there is no regulatory limit on the number of FoFs an asset management company can launch.
This freedom has led to innovation across product types such as
- Multi-Asset FoFs
- Income plus arbitrage FoFs
- ETF based FoFs
- International and global FoFs
As a result, FoFs have emerged as a key growth segment for the mutual fund industry in recent years.
(Source: SEBI)
Tax Table for FY 2025–2026
| Asset Exposure | Short-Term (STCG) | Long-Term (LTCG) | Holding Period for LTCG |
|---|---|---|---|
| Equity-Oriented (≥65% Equity) | 20% | 12.5% (Exempt up to ₹1.25L) | > 12 Months |
| Hybrid / Multi-Asset / FoFs (35% to 65% Equity) | As per Tax Slab | 12.5% (No Indexation) | > 24 Months |
| Debt-Heavy / Specified MFs (<35% Equity) | As per Tax Slab | As per Tax Slab | Exists, but no tax benefit for long-term holding |
(Source: Economic Times)
For investors in higher income tax brackets, FoFs have become more tax efficient than traditional debt funds. Unlike debt funds, which are taxed at slab rates irrespective of the holding period, FoFs benefit from a lower long term capital gains tax when held for the required duration, resulting in better post tax returns.
Multi-Asset FoFs Compared With Direct Funds and ETFs
| Comparison | Fund of Funds (FoFs) | Direct Funds / ETFs | When FoFs Make More Sense |
|---|---|---|---|
| FoF vs Debt Funds | Attract 12.5% LTCG tax after 24 months | Taxed at slab rates for all holding periods | For investors in higher tax brackets |
| FoF vs Hybrid Funds | Wider diversification as each underlying fund holds many securities | Clearer asset allocation but fewer layers | For investors seeking broader diversification |
| FoF vs ETFs | No demat account required and easier to manage | Lower cost but needs demat account and active tracking | For investors who prefer simplicity |
| FoF vs DIY Portfolio | Professional fund selection and regular rebalancing | Full control but higher effort and tax impact | For beginners or busy investors |
(Source: Business Today)
What Are the Drawbacks of Multi-Asset FoFs?
Despite their advantages, FoFs are not without limitations.
- Dual expense structure where both FoF and underlying fund costs apply.
- Performance dilution if some underlying funds underperform.
- Dependence on quality of fund selection by the manager.
- Limited availability of international FoFs due to regulatory caps.
- Investors in FOFs have limited control over selecting and allocating underlying funds.
(Source: ICICI Bank)
Who Should Consider Investing in Multi-Asset FoFs?
Multi-Asset FoFs can be suitable for several investor profiles.
- Investors in higher tax slabs seeking better post tax returns
- Beginners looking for simple asset allocation
- Investors seeking global or gold exposure without complexity
- Individuals without a demat account
- Long term investors who prefer disciplined rebalancing
They may not suit cost focused investors or those who prefer active control over every investment.
How to Choose the Right Multi-Asset FoF
Selecting the right FoF requires due diligence. A structured checklist helps.
- Clear investment objective aligned with your financial goals
- Strong quality and consistency of underlying funds
- Asset allocation strategy that matches your risk profile
- Reasonable expense ratio considering the dual cost structure
- Understanding of tax treatment and holding period requirements
- Track record of the FoF across different market cycles
Evaluating these factors improves the chances of long term success.
(Source: ICICI Bank)
The Bottomline
Multi-Asset FoFs offer a simple way to diversify across equity, debt and gold within a single fund. For investors seeking tax efficiency, professional allocation and ease of management, Multi-Asset FoFs can be a valuable portfolio addition. If used correctly, they support long term wealth creation while reducing the stress of active portfolio management.
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