HDFC Multi Asset Active FOF: Active asset allocation for uncertain markets

The nature of markets is uncertain and rife with multiple volatile spells. For example, the last 20 years have witnessed multiple key events that have impacted equity markets in the short term. Markets are shaped by forces beyond traditional economic cycles. Volatility, ambiguity, uncertainty, and complexity affect markets frequently.

The market has been volatile this year too due to rapid geopolitical developments. Volatility again gripped the market in July due to global trade uncertainties, especially Trump administration’s tariffs on India’s exports to the US. In uncertain market conditions, asset allocation can provide stability to an investor's portfolio by balancing risks and returns. In this article we will review the HDFC Multi Asset Active FOF and understand how this fund can contribute to your asset allocation requirements.

Why Asset Allocation?

Different asset classes outperform/underperform each other in different market/ economic conditions (see the chart below), making it impossible to predict the next winner. Different asset classes perform different roles in your portfolio, e.g. equity provides capital appreciation, debt provides portfolio stability, gold provides inflation protection, etc. You can see that debt is much more stable than equity. Gold and equity are usually counter cyclical to each other, i.e. gold outperforms when equity underperforms and vice versa. There is also a low correlation between domestic equities and international equities’ returns. Combining these asset classes may lead to relatively stable portfolio returns.

Source: National Stock Exchange, MCX, Advisorkhoj Research, as on 31^st July 2025. Nifty 50 TRI is used as a proxy for equity as an asset class, Nifty 10-year benchmark G-Sec Index is used as proxy for fixed income as an asset class, spot price of Gold and Silver (in MCX) is used as proxy for Gold and Silver.

Is it easy to time the markets?

The chart below shows the calendar year returns from Nifty 50 in each year over the last 25 years. You will see that the Nifty 50 has given varying returns and even negative returns in various years. Timing the equity markets is difficult. It is difficult to predict the correct entry and exit points consistently in the short term.

Source: NSE, Advisorkhoj Research, as on 12^th August 2025.

Why invest in Multi Asset Allocation Funds?

• Asset classes have low/negative correlation: Investing in asset classes with low or negative correlation helps reduce portfolio volatility. Debt has low correlation with all asset classes making it a good stabilizer. Equity has a low correlation with Gold, making it a useful diversifier. (See the table showing the correlation between asset classes)
  
  

  

  Source: www.niftyindices.com, World Gold Council. Data from April 2002 to April 2025. Data used for asset classes: Equity - NIFTY 50, Debt - NIFTY 10-year Benchmark GSec, Gold - Spot Rate ₹/10 Grams. Comparison with Gold has been given solely for the purpose of understanding and illustrative purposes



• Combining different asset classes, improves the overall risk adjusted returns: The graphic below shows two charts. The first chart shows how returns and volatility involved from equity, debt and gold classes. The second chart makes use of asset allocation various combination and weightages to give better risk adjusted returns.
  
  

  

  Source: www.niftyindices.com , World Gold Council. Data from March 31, 2002 to April 30, 2025. Returns are compounded annual in nature. Data used for asset classes: Equity - NIFTY 50, Debt - NIFTY 10-year Benchmark G-Sec, Gold - Spot Rate/10 Grams. Monthly portfolio rebalancing assumed. Standard Deviation calculated using daily returns. The above analysis is based on back-testing of the above-mentioned asset classes. Comparison with Gold has been given solely for the purpose of understanding and illustrative purpose. The above combinations are for illustrative purpose. *E: Equity, D: Debt, G: Gold

How to take exposure to different asset classes efficiently?

A Fund of Funds reduces the efforts of making investment decisions of investors by relying on the expertise of Fund Managers to take exposure to multiple mutual fund schemes / asset classes. The fund of funds can help you in managing all the 5 dimensions of investing with an aim to create wealth in the long term. (see graphic below)

Source: HDFC MF Product presentation

About HDFC Multi Asset Active FOF

Formerly known as the HDFC Asset Allocator Fund of Funds, the name has been changed to HDFC Multi-Asset Active FOF, effective from May 02, 2025, and the Benchmark of the Fund has been changed to 50% NIFTY 50 TRI + 40% NIFTY Composite Debt Index + 10% Gold derived as per regulatory norm. The Fund managers Mr. Srinivasan Ramamurthy (Equity-oriented Schemes), Mr. Anil Bamboli (Debt-oriented Schemes) and Mr. Bhagyesh Kagalkar (Gold ETFs) seek capital appreciation by managing the asset allocation between Equity-oriented, Debt-oriented and Gold ETF Schemes.

Why invest in HDFC Multi Asset Active FOF?

• Better risk adjusted returns compared to Nifty 50: Since inception, the Fund has been able to perform strongly against NIFTY 50 TRI with lower volatility.
  
  

  

  Source: Advisorkhoj Research as on 12^th August 2025



• Lower drawdown compared to Nifty 50 TRI as result of its diversification across different asset classes: Recent drawdowns of the fund has been significantly lower than the broad market index between market peak and trough. (see chart below)
  
  

  

  Source: Advisorkhoj Research as on 12^th August 2025



• Dynamic approach taking care of allocation "horizontally" (Across asset classes) and "vertically" (Across large, +mid and small caps for Equity-Oriented Schemes, and across different durations / themes for Debt-Oriented schemes):


• Fund gives exposure to a Multi-Fund Manager expertise


• Aim to generate risk-adjusted returns in a tax efficient manner post latest union budget and subject to conditions (Surcharge as applicable + Health and Education Cess applicable at 4% on aggregate of base tax + surcharge. In view of the individual nature of tax consequences, each investor is advised to consult his / her own professional tax advisor. The information given here is neither a complete disclosure of every material fact of Income Tax Act (1961), nor it constitutes a legal or tax advice)


• 25 years of proven of HDFC Mutual Fund with an experienced Investment Team


• One-stop solution for meeting asset allocation needs by combining negatively / low correlated assets, bringing diversification to your portfolio

Investment strategy of HDFC Multi Asset Active FOF

1. Equity Allocation Strategy:
   
   

   Allocation to Equity is done on two considerations: Base allocation (75%-100% of Equity allocation) and tactical allocation (0-25% of equity allocation). The factors considered for equity allocation are Trailing 12-month P/E, 1-year forward P/E, Trailing 12-month P/B^, Earnings Yield / G-Sec Yield. The model aiding judicious and dynamic allocation towards equity is done by keeping the above factors in mind. The Model indicating allocation towards Equity is devised on the basis of back-tested results. The Portfolio is rebalanced on a monthly basis.

   Current positioning in Equity Component of the Portfolio: Decrease in exposure to small and mid cap funds (Please refer to the table below) (Rationale behind Current Positioning: Factors for the model indicating rising valuations in the mid and small cap segments, leading to a lower allocation to those funds and a higher allocation towards funds with higher allocation towards large caps)

   

   Source: HDFC MF, Monthly Portfolios, MFI Explorer. *P/E: Price/Earnings, ^P/B: Price/Book Value, **Earnings Yield = Trailing 12M Earnings per share/ Market price per share, G-Sec Yield = 10 Year G-Sec. The current investment strategy is subject to change depending on the market conditions. Depending on the market and other conditions, the asset allocation may or may not be based on the proprietary model



2. Debt Allocation Strategy:
   
   

   The Aim of Debt allocation is to invest, predominantly, in schemes with exposure mostly to issuers with high credit quality, and take controlled interest rate risk

   Current Positioning: Addition of exposure to Corporate Bond Fund (Please refer to the table below) (Rationale behind Current Positioning: (a) The Reserve Bank of India (RBI) has implemented 3 rates cuts totalling 100 bps in February, April and June Monetary Policy Reviews bringing down repo rate from 6.5% to 5.5% (Source: RBI), (b) June 2025 inflation has been at its lowest level since January 2019 (c) Both points (a) and (b) are likely to keep yields rangebound with a downward bias, and (d) Corporate bond spreads stand at attractive levels over G-Secs)

   

   Source: HDFC MF



3. Gold Allocation Strategy:
   
   

   Gold prices and real interest rates indicated by Treasury Inflation Protected Securities (TIPS) have historically been negatively-correlated. Hence, this indicator is being used to determine the allocation towards gold.

   Current Positioning of the Gold Component in the Portfolio: Allocation to Gold has been tactically reduced on account of the sharp rally witnessed in Gold prices (Please refer to the table below) (Rationale behind Current Positioning: Geopolitical risks and uncertainty created by the imposition of tariffs by US Government on different countries could have been a primary factor behind the rally in Gold prices in the recent past).

   

   Source: HDFC MF

Taxation of HDFC Multi-Asset Active FOF

Note: Short-term period: Period of holding less than or equal to 24 months, Long-term period: Period of holding greater than 24 months. ^Surcharge as applicable + Health and Education Cess applicable at 4% on aggregate of base tax + surcharge

Who should invest in the HDFC Multi-Asset Active FOF?

The fund may be suitable for investors who:

• Seek stability in volatile markets.


• Aim for better than debt returns while keeping volatility in check.


• Want to diversify across various asset classes.


• Look for investment for midterm to long term goals of goals 3-5+ years

Contact your Financial Advisor or Mutual Fund distributor to understand if the HDFC Multi-Asset Active FOF is suitable for you.