Sebi’s FoF revamp triggers multi-asset fund boom: What’s improved, what still needs fixing for investors

Investors seem convinced that multi-asset is the right path. In January, investors poured in Rs.10,485 crore in multi-asset funds, surpassing the Rs 7,672 crore they parked in flexi-cap funds. The asset allocation pitch has worked, with participation in gold and silver making the argument compelling. Most Asset Management Companies (AMCs) already have a dedicated multi-asset fund.

But some now have twins—running another multi-asset offering in a fundof-funds (FoF) wrapper. Some have adopted the ‘omni’ label, while others have opted for active-only or passiveonly mandates. Are these newer multiasset avatars what your portfolio needs? Or are AMCs spoiling what is already a good enough proposition?

When ‘multi’ is not enough

Traditional multi-asset funds had a simple product proposition—combine three or more asset classes under one roof, offering built-in diversification and a ready-made solution to investors’ asset allocation problem. The fund assumes responsibility for asset rebalancing, and the investor pays no taxes. These mostly invest directly in the chosen assets.


Soon, AMCs began offering the same solution in a FoF format, where one fund invests across multiple other schemes. Some chose active strategies as the underlying approach, while others took a passive-only approach. When Sebi fund categorisation rules were initially rolled out in 2018, FoFs were housed under the “Other schemes” category. No further categories or sub-categories were carved out for FoFs, unlike other mainstream fund categories. Also, AMCs were free to roll out any number of schemes in this format—a restriction placed on equity, debt, and hybrid funds. However, Sebi’s 2025 circular on Fund of Funds recategorisation changed this. This required AMCs to categorise FoF offerings into distinct groups to prevent overlap. For every permitted FoF category, AMCs can offer an active-only strategy, a passive-only strategy and a combined active-passive strategy. Existing FoFs had to realign accordingly, including the multi-asset funds.

The outcome? The multi-asset space, already comprising diverse investment strategies, is becoming increasingly complex. Aditya Birla SunLife MF, Kotak MF, and Nippon India MF have repositioned their existing FoFs and renamed them ‘Multi Asset Omni FoF’. All three already run a traditional multi-asset offering. Edelweiss MF, Groww MF and DSP MF have recently launched fresh offerings in the ‘omni’ avatar, following on the heels of their existing multi-asset funds.

HDFC MF, HSBC MF, and Quantum MF now offer active-only multi-asset FoF products, alongside their existing plain-vanilla multi-asset funds. Axis MF and Baroda BNP Paribas MF joined this group recently. Bandhan MF now offers a passive multiasset FoF in addition to its regular multiasset fund. Further, Aditya Birla SunLife MF also offers a passive-only FoF, making it the fund’s third multi-asset offering. Meanwhile, ICICI Prudential MF has now ‘grandfathered’ its Passive Multi Asset FoF, as the fund could not fit within any of the prescribed categories under the revised framework. The scheme will continue to run, but will no longer accept fresh investments.

Siblings with divergent outcomes
Several AMCs running variants of multi asset funds show big difference in returns.

What do you gain?

At a broader level, the newer multi-asset FoFs solve the same problems for investors: not having to worry about choosing the right asset mix, rebalancing, fund selection, sector rotation, valuations, and staying tax-efficient, among others. All decisions are guided by the AMC’s in-house investing framework. Where they diverge is on two levels.

One, these can invest in schemes of other AMCs. This allows for manager diversification, allowing a single fund to tap the expertise of different fund managers. Bhavesh Jain, Co-Head, Factor Investing, Edelweiss MF, asserts, “One fund manager rarely manages all strategies equally well. But in this multi-manager approach, the fund retains flexibility to choose the best-inclass managers to manage specific assets.” It also allows the fund to invest across asset classes, even if the AMC does not run schemes in all categories, notes Amol Joshi, Founder, Plan Rupee Investment Services. However, among active-only and hybrid multi-asset FoFs, only Axis MF, Groww MF, and HSBC MF currently invest in schemes of other AMCs. Others remain invested across their own schemes. DSP MF’s upcoming fund (its new fund offer closed on 19 February) also includes a provision to invest in other AMC funds.

Two, the ‘omni’ multi-asset FoF can invest in both active and passive strategies within the same fund. This introduces style diversification within the fund. Investors can tap into the outperformance capabilities of active funds even as passive funds offer diversified exposure. For instance, Edelweiss Multi Asset Omni FoF holds the largest weight in the Edelweiss Nifty LargeMidcap 250 ETF, complemented by smaller allocations to active strategies.

There are some tax benefits for taking the FoF route. Sahil Kapoor, Head of Products & Market Strategist at DSP MF, points out, “The investor incurs zero tax liability for any internal switches, whether between fund managers or asset classes.” Now, the FoF packaging also makes the capital gains taxation favourable. Most regular multiasset offerings have an equity tilt, aiming to benefit from the 12.5% tax rate on gains after one year. Now, gains on all FoFs also get taxed at 12.5% after a holding period of two years. This allows multi-asset funds to maintain higher allocations to fixed income or commodities without worrying about higher tax incidence.

What do you miss?

The FoF avatars of multi-asset funds are lacking in one specific area. Unlike regular multi-asset funds, these do not allow exposure to foreign equities. This domesticmarket bias makes them less diversified. Investors seeking global diversification as an additional lever may find greater comfort in some regular multi-asset funds.

The performance of these multi-asset siblings diverges. Experts suggest that investors stick to a single multi-asset approach after carefully evaluating the scheme’s mandate and investment philosophy. Do not get tempted to switch to the newer strategies for cosmetic gains.