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Investing in mutual funds is only the first step. Choosing the right schemes, maintaining diversification, rebalancing portfolios, tracking investments and navigating taxation can make the journey considerably more complex.
A multi asset Fund of funds (FoFs) is uniquely positioned to address these challenges.
The rapid expansion of the mutual fund universe has made fund selection increasingly complex. As of May 2026, AMFI data shows 335 open-ended debt-oriented schemes and 569 open-ended equity-oriented schemes, each with its own risk-return profile and investment mandate. Debt funds vary across duration and credit quality while equity funds differ by market capitalization, investment style, portfolio construction and sectors. Add to this the growing universe of Gold ETFs and Silver ETFs, and selecting the right funds can quickly become a daunting exercise. A multi asset FoF invests in carefully selected equity, debt, gold and silver mutual funds, which in turn invest in the underlying securities. Instead of evaluating fund managers, investment styles, portfolio quality and performance consistency across multiple schemes, investors can rely on the expertise of the fund manager of the multi asset FoF to do this for them.
1 June 2026
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Many investors understand the importance of diversification but are unsure of how much to allocate to each asset class or find it cumbersome to build and maintain a diversified portfolio. A multi asset FoF makes this simple. With just one investment, the investor can gain exposure to multiple asset classes that tend to perform differently across market cycles. Rather than building and maintaining separate allocations to equity, debt, gold and silver, investors receive a professionally managed diversified portfolio through a single scheme.
Even after building a diversified portfolio, investors need to periodically review whether their asset allocation remains appropriate as market conditions evolve. Multi asset FoFs dynamically allocate across asset classes and the selected funds based on macroeconomic conditions, valuations and long-term investment views, relieving investors from continuously tracking market developments or deciding when to increase or reduce exposure to different asset classes.
Over time, investors tend to accumulate multiple mutual funds, making it difficult to monitor numerous schemes and their respective NAVs. A multi asset FoF simplifies portfolio management as investors have just one fund and one NAV to track.
As the performance of different asset classes diverges over time, the portfolio needs to be periodically rebalanced to maintain intended asset allocation. But investors often hesitate to rebalance because redeeming one fund to invest in another can trigger capital gains tax. Rebalancing between funds within a multi asset FoF however does not create a taxable event for the investor, allowing more capital to remain invested and benefit from long-term compounding.*
*Past performance does not guarantee future returns.
If investors build their own multi asset portfolio by investing separately in equity and debt funds, gains on debt fund investments will be taxed according to taxation rules applicable to debt funds. Since investments in a multi asset FoF are subject to tax of 12.5% after a holding period of 24 months, the debt component of the portfolio can also benefit from this more favourable taxation, making multi asset FoFs a potentially more tax efficient way to build a diversified portfolio.
With professional fund selection, one-stop diversification, dynamic asset allocation, operational simplicity and tax-efficient rebalancing, multi asset FoFs offer a compelling solution for investors navigating an increasingly crowded mutual fund universe and a dynamic investment environment.
The above article has been written by Anil Nathani, who is an AMFI-registered Mutual Fund Distributor at Wealth Nest Partners (ARN-161249) and specializes in investment distribution and portfolio allocation services. He assists individual investors in selecting schemes aligned with their specific financial goals and risk profiles.
Disclaimer: The information provided in this article is for informational and educational purposes only. It does not constitute financial, legal, or investment advice. Readers should not rely on this content to make investment decisions. We strongly recommend consulting with a licensed financial advisor or conducting your own due diligence before making any financial commitments.
