NAVIGATING UNCERTAINTY WITH MULTI ASSET ALLOCATION

An Investor Education and Awareness Initiative by SBI Mutual Fund.

In an environment where markets rotate between risk‑on and risk‑off, building a portfolio with more than one engine has become less of a novelty and more of a necessity. That’s where Multi‑Asset Allocation Funds—which combine equity, debt, and commodities like gold and or silver (and sometimes REITs)—fit naturally.

Multi Asset Allocation investing was once a relatively new concept, prompting many investors to question why they needed such a fund when they could invest small amounts individually across equity, debt, or gold. While this was certainly possible given the wide range of investment options available, managing multiple assets independently—along with feasibility, cost efficiency, tax efficiency, and ongoing performance tracking—often proved challenging in practice.

A Unified Portfolio Approach for Varied Market Conditions

A Multi Asset Allocation Fund, positioned within the hybrid category, simplifies this by holding a combination of equity, debt, and other assets such as REITs or commodities like gold and silver within a single portfolio. Since these asset classes do not behave in the same way at any point in time, the performance of one is not directly linked to the other. This natural diversification helps the portfolio remain more balanced and potentially offers a smoother risk adjusted experience over market cycles.

The table below highlights that different asset classes have led performance in different years since 2007. Because their movements are not perfectly correlated, combining them in a portfolio allows one asset to offset another at various times, potentially supporting a smoother overall outcome.

Table: Each asset class performance over the years

Source: MFI Explorer; Data as on December 31, 2025

One of the biggest advantages of a Multi Asset Allocation Fund is the blend of assets, each serving a distinct purpose—much like a winning sports team is never made up of only strikers or only defenders.

• Equity aims for growth and plays offense, taking calculated risks when opportunities arise.

• Debt provides potential stability and plays defence, much like fielders and wicketkeepers in cricket or goalkeepers in football.

• Commodities like gold or silver act as all rounders, stepping up during uncertainty and are uncorrelated to other asset classes thus helping balance offense and defence depending on market conditions.

Together, these asset classes form a well rounded team capable of handling different market “match situations,” providing investors with a more structured and diversified approach.

Multi Asset Approach in drawdowns:

Markets rarely move in a straight line. They shift with cycles, policy changes, and sentiment. In such an environment, a Multi Asset Allocation approach brings together complementary roles—so the portfolio can adapt to different – situations like the drawdowns. 

In the graph below, during market corrections, the BSE 500 TRI declined more sharply than both the SBIMF Multi Asset Allocation Fund Index and the SBI Multi Asset Allocation Fund over the past three years—and especially in the last year. This illustrates that, within a multi‑asset approach, different asset classes typically don’t move in perfect sync. Their varied behaviour helps reduce concentration risk and bring greater balance across market phases.

Graph: 3-year drawdown movement

Source: MFI explorer; Data as on December 31, 2025; ** A customised index designed to serve as a benchmark for the fund.  

In short, a multi‑asset approach can help during drawdowns in several ways:

1. Diversified risk drivers: Equity contributes to growth, debt provides defensiveness, and gold acts as a hedge against uncertainties.

2. Lower correlation: When one segment of the portfolio comes under pressure, another can help cushion the impact.

3. Rebalancing: A disciplined “buy‑low, sell‑high” mechanism may help smoothen the investment journey across cycles.

4. Path stability: Even if long‑term returns are similar to other categories, the overall experience can be more stable.

Comparative behaviour (indicative, not predictive):

1. Pure Equity: Historically experiences deeper and faster drawdowns during sharp market sell‑offs.

2. Aggressive Hybrid / Balanced Advantage: Generally, displays lower drawdowns than pure equity due to potential to shift between equity and debt.

3. Multi‑Asset Allocation: Often comparable to aggressive hybrids in risk‑off phases, especially when allocations to gold/silver and debt are meaningful and are considered now as all-weather offerings

Why does it matter now?

The current market environment makes the case for a multi asset approach particularly compelling.

• Global uncertainty and intermittent volatility:

Geopolitical tensions, shifting global growth trends, and sudden risk off phases mean market sentiment can change quickly. Just like in a competitive match where momentum can swing within minutes, portfolios today may need to move from offense to defence far more frequently than before.

• Interest rate transitions impacting multiple asset classes:

Changes in policy rates and expectations around future rate cuts or hikes influence both equity valuations and bond prices. This creates a dynamic environment where having exposure to only one asset class may leave portfolios vulnerable to sharp swings.

• Domestic and global policy cues influencing market direction:

Fiscal announcements, regulatory updates, central bank actions, and global macro signals can shift markets abruptly. These policy driven movements affect different asset classes in different ways, making a single asset approach more exposed.

• Commodities like Gold & Silver’s role gaining significance:

Whenever uncertainty rises—be it due to inflation worries, currency dynamics, or geopolitical tensions—commodities like gold and silver historically played a prominent role. Its re emergence as a diversifier adds another layer of balance within a multi asset framework.

Conclusion — One Team, Many Roles

A Multi Asset Allocation approach is a portfolio that plays both offense and defence. By blending equity for growth, debt for stability, and commodities like gold and silver for diversification, it aims to create a more measured investment experience across market cycles. In a world where conditions change quickly, a team with clear roles, balance, and discipline helps investors stay the course—focused on the full season, not just the scoreboard at halftime.

An Investor Education and Awareness Initiative by SBI Mutual Fund.

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