In January 2026, multi-asset funds pulled in ₹10,485 crore—higher than what any equity category received in the same month.
The asset-allocation and diversification argument underpinning multi-asset funds, strengthened by the inclusion of gold and silver as investable components, appears to be driving their rising popularity among investors.
But just as investors were getting comfortable with the multi-asset pitch, fund houses have begun multiplying their offerings.
Sebi’s 2025 directive on fund-of-funds (FoF) re-categorization appears to have triggered a fresh wave of multi-asset products. But do investors really need this variation of the multi-asset strategy, or does it simply amplify noise in an already crowded market and make choice harder?
FoF revamp
When Sebi first introduced fund categorization rules in 2018, FoFs were tucked into a residual “Other Schemes” bucket. Unlike equity, debt or hybrid funds, they had no distinct sub-categories. FoFs are funds that invest in other funds—hence the name “fund of funds”.
In 2025, Sebi (Securities and Exchange Board of India) directed fund houses to recategorize their FoF offerings, requiring every FoF scheme to be slotted into a defined category.
Fund houses can run three variants per category: an active-only strategy, a passive-only strategy and a combined active-passive strategy (commonly labelled “omni”).
The recategorization aimed to provide a clearer framework for these schemes, which previously lacked a well-defined structure.
Broad categories were created along the lines of equity, debt and hybrid, each with further sub-categories. Multi-asset FoFs fall within the hybrid category.
Within each category, FoFs can adopt three approaches: invest in actively managed schemes, invest in passively managed schemes such as exchange-traded funds or index funds, or combine both approaches. FoFs following the combined approach are required to include the term “omni” in their nomenclature.
Diversification play
The core promise of a traditional multi-asset fund remains intact in these FoF formats: one product, multiple asset classes, internal rebalancing within the fund and no tax drag on internal switches.
What changes is how diversification can be executed.
FoFs have the flexibility to invest in schemes of other AMCs—not just their own—introducing a multi-manager dimension.
"If a particular AMC's investment approach is heavily oriented towards quality as a factor and quality underperforms for a stretch, a multi-asset FoF can offset that risk by pairing it with exposure to a fund manager or fund house running a different philosophy entirely," said Anil Ghelani, head of passive Investments and products at DSP MF. The fund house recently launched the DSP Multi Asset Omni Fund of Funds.
Style blending
The omni variant introduces another layer of diversification by combining active and passive strategies within a single fund.
“Besides the ability to invest in schemes of other fund houses, omni variant spans both active and passive mandates, and even access multi-factor or smart-beta strategies that capture specific attributes like quality, low volatility, or value. More thematic and sectoral calls are also possible through this structure," said Niranjan Avasthi, senior vice-president at Edelweiss MF. The fund house recently launched the Edelweiss Multi Asset Omni FoF.
"Investors get the potential outperformance of actively managed funds blended with the broad, low-cost exposure that passive funds provide —all within one wrapper," Avasthi added.
Amol Joshi, founder of Plan Rupee Investment Services, notes that the structure also allows an AMC to access asset classes it may not manage internally.
But Joshi cautioned that the flexibility of the category also increases its complexity.
“The wider flexibility allows the FoF manager to take sector-specific calls by allocating more to certain sector funds or by increasing exposure to particular thematic investments. Such investment calls may work well in some market cycles, but may not deliver the same results in others,” he explained.
“These funds cannot be painted with the same brush, as they may follow very different investment frameworks and take distinct strategic positions. Investors, therefore, need to evaluate them on a product-by-product basis,” he added.
Tax treatment
On capital gains, all FoFs are now taxed at 12.5% on long-term capital gains (LTCG) after a two-year holding period—the same rate applied to equity funds, though with a longer holding period. For regular equity funds, the determing holding period is that of one year.
This matters because it allows a multi-asset FoF to tilt meaningfully toward fixed income or commodities without attracting the higher tax rates that typically apply to non-equity products.
Investors also do not face any tax event when the fund undertakes internal rebalancing.
The FoF manager may sell or trim holdings in underlying funds as part of this reallocation, but such transactions do not trigger tax liability for investors.
If an investor were to carry out the same exercise individually—by selling units of funds to rebalance—each such sale would attract capital gains tax.
Portfolio role
For the core portfolio, regular multi-asset funds remain the stronger choice.
Beyond the usual mix of equity, debt, gold, silver, international equities, they can also hold Reits (real estate investment trusts), InvITs (Infrastructure Investment Trust).
While the multi-manager structure is a potential advantage for FoFs, not all FoFs seem to be exercising it. Quite a few fund houses still invest exclusively in their own schemes, even though the option remains open for them.
The FoF structure can be parked in the satellite portion of a portfolio—for investors who want an additional layer of diversification and the ability to participate in tactical calls by the FoF manager such as thematic and sectoral opportunities, but within a broader diversified structure.