Equity markets walked much of 2025 on fragile terrain, amid repeated shocks that made market participants cautious and focused on preserving their capital rather than chasing returns.
US President Donald Trump's tariff tantrums and trade policy uncertainty, the capture of Venezuela’s President Nicolas Maduro by the US, tensions between the US and Iran, the ongoing Russia-Ukraine conflict, changes in global monetary policies, and the “Sell India, Buy China” rhetoric kept markets volatile throughout the year.
Domestically, weak corporate earnings and valuation concerns made it tough for investors to stay confident during the upheavals. At the same time, higher US bond yields and a stronger dollar lowered the relative attractiveness of emerging-market equities, including India.
Consequently, foreign portfolio investors (FPIs) reduced their exposure to India, selling equities worth Rs 1.66 lakh crore over the year, adding more pressure to the markets, according to data from the National Depository Securities (NSDL).
Amid this, Nifty 50, the widely-tracked domestic benchmark equity index, managed to deliver 10.50 per cent returns during the year. The return looks decent on paper, but when compared with other asset classes, they appear dwarfed.
Flight To Safety: The Rise Of Multi-Asset Allocation Funds
The volatility in equities led market participants to seek safety in traditional hedges, such as gold and silver. As a consequence, gold prices climbed around 70-75 per cent during 2025, one of their strongest annual performances in decades, and silver rallied even higher, yielding returns in the range of 150-172 per cent.
The year 2025 saw a classic “flight to safety” investor behavior. When macro uncertainty rises, investors typically shift capital from growth-oriented assets to safe havens, a pattern that played out clearly through 2025.
Amid this, multi-asset allocation funds (MAAFs) emerged as the star performer of the mutual fund industry. The category recorded 68.20 per cent year-on-year (y-o-y) growth in assets under management (AUM), second only to gold exchange-traded funds (ETFs), which saw a growth of 255.50 per cent over the same time frame. If we look at the performance of MAAFs over the past three years, their AUM grew by a massive 573.50 per cent, according to data from the Association of Mutual Funds in India (Amfi). As of January 31, 2026, the AUM of MAAFs stands at Rs 1.74 lakh crore, up from Rs 25,934 crore on January 31, 2023.
What are Multi-Asset Allocation Funds
An MAAF is a mutual fund scheme that diversifies your funds across different types of assets, such as equities, bonds, and commodities. These schemes aim to balance risk and return and reduce the impact of market ups and downs.
Professional fund managers run these schemes and adjust the mix of assets depending on market conditions. This helps the fund grow over the long term and helps minimise risks associated with any single asset class.
This approach very much aligns with Warren Buffet’s investment strategy - “Don’t put all your eggs in one basket.”
The Rise of MAAFs as a Hedge Against Volatility
In its latest monthly note, Amfi said, “Multi-asset allocation funds topped inflows within the hybrid segment for the third consecutive month, highlighting sustained investor preference for diversified strategies.”
Avinash Satwalekar, president of Franklin Templeton Asset Management (India), told Outlook Money that market volatility has been a key driver behind the strong performance of multi-asset allocation funds.
He said, “Multi-asset allocation funds are doing well precisely because of the volatility. People are unsure whether markets are headed up or down, so they want to hedge their bets. They don’t want all their money sitting in equities and prefer to include some fixed income or debt in their portfolios.”
He added that while debt funds traditionally acted as a shock absorber, investors are now looking at multi-asset schemes, which combine “equities with a portion of debt and everyone’s favourite metals, gold and silver.”
Satwalekar added that if equity markets pick up, flows could return to equities. But for now, “as people are uncertain about the markets and volatility persists daily, multi-asset allocation schemes have done well precisely because they offer a way to absorb that volatility.”
