Multi Asset Allocation Funds appear passive however act like lively funds as a consequence of versatile equity-debt ranges. Be taught why they might not go well with you.
Over the previous few years, Indian buyers 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 actually passive.
One such instance is the rising recognition of Multi Asset Allocation Funds that declare to supply the comfort of passive investing throughout fairness, debt, and gold. However should you dig a bit deeper, you’ll understand that these funds are “passive” solely in look — not in apply.
Let’s study this carefully utilizing the Motilal Oswal Multi Asset Allocation Funds of Funds (Aggressive and Conservative), backed by knowledge from their Scheme Data Doc (SID) and September 2025 presentation.
Are Multi Asset Allocation Passive Funds Really Passive?
What Are Multi Asset Allocation Funds?
Beneath SEBI’s classification, Multi Asset Allocation Funds are hybrid funds investing in at the least three asset courses, comparable to fairness, debt, and gold, with 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 passive, claiming they solely spend money on index funds or ETFs.
Nonetheless, there’s a delicate however essential distinction:
Whereas the devices inside these funds could also be passive, the allocation choices are very a lot lively.
The Motilal Oswal Instance – What the SID Says
Motilal Oswal provides two such schemes:
- Motilal Oswal Multi Asset Allocation Fund of Fund – Aggressive
- Motilal Oswal Multi Asset Allocation Fund of Fund – Conservative
In keeping with the Scheme Data Doc (SID, dated September 2025) and the official presentation (September 2025), each funds intention to supply 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 Lively
At first look, it looks like a balanced strategy. 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 swing, which is very large.
The SID clearly mentions (Web page 11):
“The asset allocation might be dynamic and should change occasionally 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 spend money on every asset class based mostly on market views — precisely what lively administration means.
So, whereas these funds use passive ETFs as constructing blocks, the technique itself is lively.
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 factor is simply within the ETFs. The lively factor lies within the decision-making course of.
If the fund supervisor’s mannequin indicators equities are overvalued, they may scale back fairness to 65%. If markets fall, they may improve fairness to 90% or extra.
That’s tactical asset allocation — not passive replication.
Briefly, these funds are lively 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 away, and also you’re snug with tactical modifications in asset allocation, these funds may serve your function.
Over lengthy durations, short-term allocation modifications have minimal impression, 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 buyers who don’t wish to actively rebalance portfolios themselves, these funds may be handy.
Unsuitable for Close to-Time period or Objective-Based mostly Investing
Nonetheless, for buyers 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 progressively scale back fairness publicity and improve debt allocation to guard capital.
However in these funds, you might have no management over fairness ranges. The supervisor might nonetheless maintain 70–80% in fairness when your purpose is simply 2 years away — as a result of their valuation mannequin says “equities are engaging.”
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 funds, the place you may management your individual glide path.
Level 3: Fairness Taxation Entice — The Hidden Design Bias
Right here’s probably 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-oriented, and
- These with lower than 65% are handled as non-equity (debt) and taxed accordingly.
To make sure buyers benefit from the decrease fairness tax charges (10% LTCG and 15% STCG), fund homes design their portfolios to all the time hold at the least 65% in fairness — even when market situations don’t justify it.
Meaning even throughout risky or costly market phases, the fund may 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 get pleasure from fairness taxation standing.
Extra Concern – Behavioural Danger
These funds may create behavioural confusion.
When markets fall, the fund may transfer into debt, lowering fairness publicity. When markets rebound, buyers may examine returns with pure fairness funds and really feel dissatisfied — resulting in untimely exits or switching.
Therefore, except you absolutely perceive that the allocation inside is dynamic, you may misread efficiency.
Price Angle – Passive Is Not All the time 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.
Despite the fact that each could seem low individually, mixed they typically match or exceed actively managed hybrid funds.
As an example, 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,” all the time test the Complete Expense Ratio (TER) within the SID and factsheet.
Ultimate Ideas – Passive Label, Lively Actuality
The most important takeaway is that this:
Not each fund labeled as “passive” is genuinely passive.
The Motilal Oswal Multi Asset Allocation Funds of Funds — and several other related schemes from different AMCs — are actively managed by way of allocation, regardless of utilizing passive devices.
They’re marketed neatly, taking benefit of the present investor bias towards index funds. However in apply, they perform very like tactical hybrid funds.
Appropriate for:
- Lengthy-term buyers (10+ years),
- These snug with fund manager-driven shifts,
- Traders looking for comfort in a single diversified fund.
Not appropriate for:
- Quick-term or near-goal buyers,
- Those that want fastened or predictable equity-debt splits.
In Abstract
| Side | Remark |
| Fund Kind | Fund of Funds (investing in Motilal Oswal ETFs) |
| Branding | Marketed as “Passive” |
| Precise Technique | Lively, Dynamic Asset Allocation |
| Allocation Vary | Fairness 65–100%, Debt 0–35%, Gold 0–10% |
| Appropriate For | Lengthy-term buyers snug with tactical strikes |
| Not Appropriate For | Close to-term objectives needing managed de-risking |
| Key Danger | 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 exhibits how AMCs are cleverly using the “passive investing wave.”
Whereas the underlying ETFs are passive, the decision-making course of stays lively — based mostly on fund supervisor discretion or valuation fashions.
For long-term buyers who need simplicity and may settle for this lively layer, these funds could match properly.
Nonetheless, should you want management, transparency, and goal-specific asset administration, it’s wiser to create your individual equity-debt combine somewhat than counting on such “passive in title, lively in actuality” merchandise.
All the time learn the Scheme Data Doc (SID) fastidiously — particularly the Asset Allocation Sample and Funding Technique sections — earlier than assuming {that a} fund labeled “passive” actually 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 choices needs to 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 choices based mostly on the data mentioned on this put up.
