If you look at the performance of various asset classes over the last 10 years, you will notice that asset classes take turns to outperform each other every year. It is challenging to predict which asset class will be the best performer next year. Hence, an investor should follow asset allocation and create a diversified investment portfolio. To do that, an investor can take a do-it-yourself (DIY) approach or invest in a multi-asset allocation fund. Both methods have their pros and cons. In this article, we will discuss both approaches to determine which is better and which one you should follow.
Why build a diversified investment portfolio?
A diversified investment portfolio spreads investment risk across various asset classes, such as domestic and international equities, fixed income, gold and silver, etc. Every asset class behaves differently across different economic cycles. Each asset class plays a distinct role in an investor’s portfolio. For example:
- Domestic equity is for growth, but can be volatile in the short-term.
- Fixed income provides accrual income through regular interest payments and the much-needed stability to the overall portfolio when equities are down or volatile.
- Gold is a hedge against inflation and a safe haven during times of economic uncertainty.
- REITs and InvITs provide exposure to real estate/infrastructure projects along with regular cash inflows and the have the potential for capital appreciation.
- International equity is for diversification and to hedge against country-specific risk. It provides exposure to global companies not listed on Indian stock exchanges and the benefits of Indian Rupee depreciation against the US Dollar.
Most asset classes have low to no correlation. In a diversified portfolio, if one asset class is not performing well, the outperformance of other asset classes can make up for it. A well-diversified portfolio optimises the risk and can provide better risk-adjusted returns.
Performance of asset classes
Source: Axis Mutual Fund website
Note: The above table shows the performance of various asset classes over the last 12 calendar years. The last column shows the returns of a diversified multi-asset portfolio with equity (Nifty 50 Index), bonds (Crisil Composite Bond Index), gold (MCX Gold price per 10 grams), and silver (MCX Silver price per 1 kg).
It is challenging to predict which asset class will do well every year. Hence, an investor should have a diversified portfolio across various asset classes so that the portfolio can benefit from whichever asset class outperforms.
Building a diversified portfolio with DIY approach
In the earlier section, we understood the benefits of having a diversified portfolio with allocations to various asset classes. One way to build a diversified portfolio is to take the do-it-yourself (DIY) approach.
In the DIY approach, an investor must identify the asset classes to invest in and the percentage allocation to be made to each asset class. To do this, the investor must understand various asset classes, what impacts them, their potential returns, how much should be allocated to each asset class, should the allocation change and what factors to consider when deciding. To do all this, the investor has to put in time and effort.
Once the diversified portfolio has been designed, its performance needs to be monitored regularly, at least once every 6 to 12 months. If a particular asset class has outperformed significantly, the investor needs to take action to revert to the base asset allocation. It may involve booking some profit in the asset class that has outperformed and investing the proceeds in other asset classes. Redeeming or selling an asset class gives rise to capital gains, which are subject to capital gains tax.
The DIY approach gives the investor complete control over building and managing their investment portfolio.
Investing in a diversified portfolio through a multi-asset fund
In the earlier section, we understood that the DIY approach requires knowledge of various asset classes and that the investor must invest time and effort to build and manage the investment portfolio. A multi-asset allocation mutual fund solves these challenges.
A multi-asset allocation mutual fund is an open-ended scheme that invests in at least 3 distinct asset classes. The fund allocates at least 10% to each asset class. The asset classes can include domestic equity, gold, fixed income, REITs, InvITs, international equity, etc. A multi-asset allocation fund is commonly referred to as MAAF.
A professional fund manager creates a diversified portfolio with appropriate allocation to the chosen asset classes, based on market conditions. As market conditions change, the fund manager can dynamically change allocations to the asset classes.
Within the scheme, when the fund manager reduces allocation to one asset class by selling some units and reallocating the money to another asset class(es), there are no capital gain tax implications for the investor. An individual can invest regularly in a MAAF through the systematic investment plan (SIP) route.
A MAAF lowers risks with diversification across multiple asset classes. However, as market conditions change, a MAAF fund manager can capitalise on the arising opportunities and generate higher returns.
The benefit of a multi-asset allocation fund is that it gives you exposure to multiple asset classes within a single scheme, managed by a professional fund manager. However, as the fund manager makes the decisions, you will have no control over building and managing the portfolio. A MAAF can provide generic customisation to all investors, but not personalised customisation, which is possible in the DIY approach.
Performance of multi-asset allocation funds
Let us look at the returns given by the multi-asset allocation funds category.
| Investment period | Returns (CAGR) |
| 1 year | 21.68% |
| 3 years | 18.71% |
| 5 years | 15.77% |
| 10 years | 12.16% |
Source: Value Investor Online
Note: The above returns are as of 11 February 2026.
The above table shows that the MAAF category has delivered good returns over the last one year, as it has exposure to gold and silver, which have delivered excellent returns over the last one year. However, the returns in the last 3, 5, and 10 years are also good.
As per AMFI data, the MAAF category saw inflows of Rs. 10,485 crores in January 2026, a 41% jump over the Rs. 7,426 crores in December 2025. The MAAF category recorded the highest inflows in the hybrid mutual funds category.
Which portfolio approach is better: DIY or MAAF?
Whether to take the DIY or MAAF approach for your investment portfolio depends on multiple factors. Are you a new investor or busy with your profession? If yes, you may invest through a multi-asset allocation fund. A professional fund manager can make decisions on your behalf.
Are you a seasoned investor who understands various asset classes well and would like to build and manage your investment portfolio on your own? If yes, you may take the DIY approach. It gives you complete control over your investment portfolio.
