The Rise of Balanced Investing: Hybrid and Multi Asset Funds in 2025

June 27, 2025

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For the past several years, the Indian investor's battle cry has been, "Invest in equities for long-term wealth creation." Though the Indian equity market without doubt has vast potential to grow, 2025 is seeing increasing emphasis on mature investment planning. It does not indicate that equities are losing their appeal completely. The narrative of India's growth continues to be attractive. But events such as global economic uncertainty, geopolitics, extremely volatile interest rates, and market corrections are forcing investors to look for solutions providing a balance of opportunities for growth and capital protection.

Hybrid and multi-asset funds, by virtue of their in-built diversification and dynamic asset allocation features, are shaping up as an interesting choice for the discerning investor in 2025. They strike a much-needed balance between risk and reward, especially relevant in today’s volatile climate.

Why Hybrid Funds are Succeeding in 2025:

Hybrid funds, by default, invest in a combination of asset classes, mainly equity and debt. This combination is designed to give the growth possibility of equities with the safety and shock absorption facility of debt, particularly during falling market phases. SEBI classifies them into:

● Aggressive Hybrid Funds: Higher equity allocation; ideal for those seeking growth with some stability.

● Conservative Hybrid Funds: Higher debt allocation; suitable for conservative investors wanting better returns than pure debt funds with minimal equity risk.

● Balanced Advantage Funds: Dynamic asset allocation based on market conditions.

Scheme Information Documents (SID) clearly indicate the equity-debt ratio, helping investors make informed decisions.

Key Benefits:

● Volatility Management: The Indian economy of 2025 has also witnessed its own share of fluctuation. Pure equity portfolios have the tendency to correct suddenly, and the investor turns nervous. Hybrid funds are shock absorbers. In case equities decline, the debt component works as a shock absorber, resulting in comparatively smoother returns.

● In-built Diversification: If you are investing all your money into a single fund, you are automatically diversifying between two large asset classes. This saves retail investors from the task of managing and rebalancing multiple equity and debt portfolios.

● Professional Rebalancing: Hybrid scheme fund managers keep monitoring the market conditions constantly. During a bull cycle, they can offload the equity segment in order to earn profit and regain the asset allocation desired, offering greater returns. When the market is down, they can switch to debt and conserve capital. Professional rebalancing, with such constant switching, prevents hassle for investors.

● Tax Efficiency (for Equity-Oriented Hybrids): More than 65% of domestic equity exposure hybrid funds are tax-efficient from an equity-oriented point of view. Hence, long-term capital gains (on units held for more than 12 months) are charged at a concessional rate of 12.5%, exceeding the gain of Rs. 1.25 lakhs, and short-term capital gains are charged at 20%.

The All-Rounder: Multi-Asset Funds

Multi-asset allocation funds further extend their diversification. SEBI rules mention that these funds should be invested in a minimum of three asset classes and a minimum of 10% distribution in each of them. They would generally involve equity, debt, and gold, and in some cases foreign equities or other commodities.

Key Benefits:

● Diversification in Depth: Where the universe is such that varied asset classes react differently to economic occurrences, multi-asset funds mean diversification at large. Equities can be struggling due to expectations of a global slowdown, but gold can be doing well as a haven asset, or debt can provide stability. This lack of correlation between asset classes facilitates control over overall portfolio risk.

● Inflation Hedge: As persistent inflationary pressures have been felt worldwide and locally during 2025, as well as in assets such as gold (which is traditionally an inflation hedge), including it within a multi-asset fund provides an additional layer of protection for purchasing power.

● Global Exposure: Multi-asset funds also tactically hold international equities, providing geographic diversification and exposure to world growth opportunities, which may be required when local markets are under duress.

● Simple Investing: For investors who wish to diversify but do not have the time or the necessary knowledge to manage more than one asset class separately, multi-asset funds provide an easy, pre-packaged solution. All asset allocation, rebalancing, and monitoring are handled by the fund manager, bringing the portfolio back in line with the market and the fund's investment aim.

● Resilience in Turbulent Markets: Multi-asset funds are built to be resilient. According to past records, multi-asset portfolios faced relatively minimal drawdowns during the time of market crashes when compared to pure equity portfolios. Therefore, they form an extremely appropriate option during the turbulent market scenario of 2025.

Comparison Between Aggressive Hybrid Funds vs Balanced Advantage Funds

1. Asset Allocation Strategy: Fixed vs Dynamic:

● Aggressive Hybrid Funds typically allocate 65–80% in equity and 20–35% in debt, with a relatively fixed allocation as stated in the AMC’s investment mandate. This allocation remains mostly stable, regardless of market fluctuations.

● Balanced Advantage Funds (BAFs), on the other hand, follow a dynamic asset allocation strategy. They can shift anywhere between 0–100% in equity or debt, depending on the fund manager’s market outlook and proprietary valuation models.

2. Ideal Investor Profile: Risk Takers vs Risk-Averse:

● Due to their higher equity exposure, Aggressive Hybrid Funds are suited for investors with a higher risk appetite who are seeking capital growth with some downside cushion.

● Conversely, Balanced Advantage Funds cater to moderate or conservative investors, offering lower volatility and smoother returns, making them a stable investment option in uncertain markets.

The Shifting Investor Mindset

The growing popularity of hybrid and multi-asset funds in 2025 is a manifestation of the increasingly sophisticated investor base that is found in India. Those days are over when one sole concentration on equities used to be the catchword. Investors today, having observed market cycles and global economic patterns, are putting priority on risk control, consistent returns, and well-balanced diversification. These funds offer a sophisticated but easy tool to meet these objectives, and thus they form a part of a well-diversified investment portfolio in today's financial environment.

-Suman Dan & Akshit Bajaj

-Dayco India

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The Rise of Balanced Investing: Hybrid and Multi Asset Funds in 2025

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