Multi Asset Allocation Funds appear passive however act like energetic funds as a consequence of versatile equity-debt ranges. Be taught why they might not swimsuit you.
Over the previous few years, Indian traders have fallen in love with index investing.
Something that has the phrase “index” or “passive” instantly earns investor belief. It’s seen as easy, low-cost, and free from fund supervisor bias.
This rising enthusiasm has given rise to a brand new pattern — AMCs launching funds branded as “passive options” even when the underlying technique is not really passive.
One such instance is the rising reputation of Multi Asset Allocation Funds that declare to supply the comfort of passive investing throughout fairness, debt, and gold. However in the event you dig somewhat deeper, you’ll notice that these funds are “passive” solely in look — not in apply.
Let’s look at this intently utilizing the Motilal Oswal Multi Asset Allocation Funds of Funds (Aggressive and Conservative)backed by information from their Scheme Info Doc (SID) and September 2025 presentation.
Are Multi Asset Allocation Passive Funds Actually Passive?
What Are Multi Asset Allocation Funds?
Beneath SEBI’s classification, Multi Asset Allocation Funds are hybrid funds investing in no less than three asset coursescomparable to fairness, debt, and goldwith a minimal 10% allocation to every.
They’re marketed as easy “all-in-one” portfolios that robotically steadiness throughout asset courses. Some fund homes even name them passiveclaiming they solely put money into index funds or ETFs.
Nevertheless, there’s a delicate however important distinction:
Whereas the devices inside these funds could also be passivethe allocation selections are very a lot energetic.
The Motilal Oswal Instance – What the SID Says
Motilal Oswal gives two such schemes:
- Motilal Oswal Multi Asset Allocation Fund of Fund – Aggressive
- Motilal Oswal Multi Asset Allocation Fund of Fund – Conservative
In response to the Scheme Info Doc (SID, dated September 2025) and the official presentation (September 2025)each funds intention to offer long-term capital appreciation by dynamically allocating amongst Motilal Oswal’s personal ETFs — fairness, debt, and gold.
Right here’s the asset allocation sample disclosed within the SID:
| Asset Class | Aggressive FoF | Conservative FoF |
| Fairness & Fairness-related Devices | 65% – 100% | 30% – 60% |
| Debt & Cash Market Devices | 0% – 35% | 40% – 70% |
| Gold ETFs | 0% – 10% | 0% – 10% |
(Supply: Motilal Oswal Multi Asset Allocation Fund of Fund SID, Web page 27 & 28, September 2025; and Product Presentation, September 2025)
Level 1: Why These “Passive” Funds Are Truly Energetic
At first look, it looks as if a balanced method. However discover the vary — the fund supervisor can transfer fairness from 65% to 100% within the Aggressive variant or from 30% to 60% within the Conservative variant.
That’s a 35%–40% discretionary swingwhich is very large.
The SID clearly mentions (Web page 11):
“The asset allocation shall be dynamic and should change infrequently relying on the fund supervisor’s outlook, valuation fashions, and market situations.”
Equally, the product presentation explicitly highlights:
“Dynamic Asset Allocation based mostly on Valuation fashions and Market outlook.”
“Tactical allocation between fairness, debt, and gold relying on relative attractiveness.”
This implies the fund supervisor (or mannequin) actively decides how a lot to put money into every asset class based mostly on market views — precisely what energetic administration means.
So, whereas these funds use passive ETFs as constructing blocksthe technique itself is energetic.
They’re greatest described as “Actively Managed Asset Allocation Funds utilizing Passive Devices.”
The Phantasm of Simplicity
Traders assume that “passive” means no market timing, no human interference, and therefore safer. However right here, that assumption fails.
The passive ingredient is just within the ETFs. The energetic ingredient lies within the decision-making course of.
If the fund supervisor’s mannequin indicators equities are overvalued, they could scale back fairness to 65%. If markets fall, they could enhance fairness to 90% or extra.
That’s tactical asset allocation — not passive replication.
Briefly, these funds are energetic in disguise — capitalizing on the present investor obsession with something “passive” or “index-based.”
Level 2: Lengthy-Time period vs. Close to-Time period Objective Suitability
Now, let’s consider whether or not such funds are appropriate for long-term or near-term monetary objectives.
Appropriate for Lengthy-Time period Traders
In case your monetary purpose is 10 years or extra awayand also you’re comfy with tactical modifications in asset allocation, these funds would possibly serve your goal.
Over lengthy durations, short-term allocation modifications have minimal affect, and the automated balancing may even defend towards volatility.
You get:
- Diversification throughout a number of asset courses,
- Tactical rebalancing based mostly on valuation indicators,
- The simplicity of managing one fund.
Therefore, for long-term traders who don’t wish to actively rebalance portfolios themselves, these funds will be handy.
Unsuitable for Close to-Time period or Objective-Based mostly Investing
Nevertheless, for traders whose objectives are close to (inside 3–5 years)these funds are not acceptable.
As you get nearer to a purpose, the usual monetary planning precept is to step by step scale back fairness publicity and enhance debt allocation to guard capital.
However in these funds, you’ve gotten no management over fairness ranges. The supervisor may nonetheless maintain 70–80% in fairness when your purpose is simply 2 years away — as a result of their valuation mannequin says “equities are enticing.”
This defeats the aim of goal-based de-risking.
Therefore, for near-term or fixed-goal planning, it’s much better to individually handle fairness and debt fundsthe place you may management your personal glide path.
Level 3: Fairness Taxation Lure — The Hidden Design Bias
Right here’s essentially the most missed level.
Most Multi Asset Allocation Funds — together with Motilal Oswal’s — are structured to qualify for fairness taxation.
Beneath present tax legal guidelines:
- Funds with 65% or extra in fairness qualify as equity-orientedand
- These with lower than 65% are handled as non-equity (debt) and taxed accordingly.
To make sure traders benefit from the decrease fairness tax charges (10% LTCG and 15% STCG)fund homes design their portfolios to at all times preserve no less than 65% in fairness — even when market situations don’t justify it.
Which means even throughout risky or costly market phases, the fund would possibly nonetheless keep a minimal 65% fairness allocation simply to retain its tax benefit.
The consequence:
Whereas it helps from a taxation standpoint, it will increase market threat — making the fund unsuitable for short- or medium-term objectives.
So, whereas AMCs pitch these merchandise as “multi asset” and “balanced,” in apply, they’re equity-heavy funds sporting a diversification badge — primarily to take pleasure in fairness taxation standing.
Further Concern – Behavioural Threat
These funds can even create behavioural confusion.
When markets fall, the fund would possibly transfer into debt, decreasing fairness publicity. When markets rebound, traders would possibly evaluate returns with pure fairness funds and really feel dissatisfied — resulting in untimely exits or switching.
Therefore, until you totally perceive that the allocation inside is dynamicyou would possibly misread efficiency.
Price Angle – Passive Is Not At all times Cheaper
As a result of these funds are Fund of Funds (FoFs)they bear:
- The expense ratio of the underlying ETFs, and
- The extra expense ratio of the FoF itself.
Although each could seem low individually, mixed they typically match or exceed actively managed hybrid funds.
As an illustration, as per the newest factsheet (September 2025), the Motilal Oswal Multi Asset Allocation FoF Direct Plan TER stands at round 0.47%whereas the underlying ETFs add one other 0.1–0.2%bringing whole value near 0.6–0.7% — not a lot decrease than some actively managed hybrids.
So, earlier than assuming “passive = cheaper,” at all times test the Complete Expense Ratio (TER) within the SID and factsheet.
Last Ideas – Passive Label, Energetic Actuality
The largest takeaway is that this:
Not each fund labeled as “passive” is genuinely passive.
The Motilal Oswal Multi Asset Allocation Funds of Funds — and a number of other comparable schemes from different AMCs — are actively managed by way of allocationregardless of utilizing passive devices.
They’re marketed well, taking benefit of the present investor bias towards index funds. However in apply, they operate very like tactical hybrid funds.
Appropriate for:
- Lengthy-term traders (10+ years),
- These comfy with fund manager-driven shifts,
- Traders in search of comfort in a single diversified fund.
Not appropriate for:
- Brief-term or near-goal traders,
- Those that desire mounted or predictable equity-debt splits.
In Abstract
| Facet | Statement |
| Fund Kind | Fund of Funds (investing in Motilal Oswal ETFs) |
| Branding | Marketed as “Passive” |
| Precise Technique | Energetic, Dynamic Asset Allocation |
| Allocation Vary | Fairness 65–100%, Debt 0–35%, Gold 0–10% |
| Appropriate For | Lengthy-term traders comfy with tactical strikes |
| Not Appropriate For | Close to-term objectives needing managed de-risking |
| Key Threat | Fund supervisor’s discretion and valuation mannequin dependence |
| Supply | Motilal Oswal SID (Pages 11, 27–28) & Product Presentation, Sept 2025 |
Conclusion
The rise of Multi Asset Allocation Funds reveals how AMCs are cleverly driving the “passive investing wave.”
Whereas the underlying ETFs are passive, the decision-making course of stays energetic — based mostly on fund supervisor discretion or valuation fashions.
For long-term traders who need simplicity and may settle for this energetic layer, these funds could match properly.
Nevertheless, in the event you desire management, transparency, and goal-specific asset administration, it’s wiser to create your personal equity-debt combine fairly than counting on such “passive in identify, energetic in actuality” merchandise.
At all times learn the Scheme Info Doc (SID) fastidiously — particularly the Asset Allocation Sample and Funding Technique sections — earlier than assuming {that a} fund labeled “passive” really behaves like one.
Disclaimer
This text is supposed purely for informational and academic functions. It shouldn’t be construed as funding, tax, or authorized recommendation. Mutual fund investments are topic to market dangers, and asset allocation selections must be made contemplating one’s particular person monetary objectives, threat tolerance, and time horizon. Readers are suggested to seek the advice of a SEBI-registered funding advisor earlier than taking any funding selections based mostly on the data mentioned on this put up.
