Different mutual fund strategies respond to changing market conditions in different ways. Some spread investments across equity, debt and commodities, while others adjust their equity and debt exposure based on market valuations and conditions.
This makes multi-asset allocation funds and balanced advantage funds interesting to compare. By looking at how they performed during the last three market corrections, we can better understand their investment approaches and how each strategy navigated changing markets.
How do Multi-Asset and Balanced Advantage Funds Differ?
According to SEBI’s mutual fund categorisation rules, multi-asset allocation funds must invest in at least three asset classes, with a minimum of 10% in each. These could include stocks, bonds and gold. This allows the fund to spread investments across different types of assets.
Balanced advantage funds, also known as dynamic asset allocation funds, take a different approach. They adjust their investments in stocks and debt based on their investment strategy and market conditions.
So, what happens when the stock market corrects? How well either fund performs depends on its investment strategy and market conditions. Neither approach guarantees protection from losses.
What Happened During the Last 3 Corrections?
- COVID-19 Crash: The pandemic triggered a sharp market decline. According to Morningstar India, the S&P BSE 500 TRI fell by 32.55% between January and March 2020. During the same period, balanced advantage funds showed an average drawdown of around 22.35%. Individual multi-asset funds performance varied widely between 17.63% and 32.58%. These figures show why category labels alone can’t tell you which strategy performed better.
- 2022 Market Correction: Market weaknesses during 2022 tested investors’ ability to tolerate volatility. Morningstar India reported that over the five years ending June 7, 2022, Balanced Advantage Funds recorded a maximum drawdown of 30%. The S&P BSE 500 showed 38%. Both funds had investment risk, but their behaviour depended on their underlying allocations.
- 2024-2025 Correction: Value Research reported that the Nifty 500 TRI fell by 18.6% between September 26, 2024, and February 28, 2025. The 39 established multi-asset allocation funds it examined recorded an average decline of just 8.1%. Their exposure to debt and commodities, alongside equities, helped cushion the impact, although the extent of protection varied across funds.
As these correction periods have different end dates, the figures should not be treated as a direct comparison. This suggests both funds may decline less than a broad equity index, but it does not establish a definitive winner.
What Should You Compare Before Investing?
Choosing a category involves more than comparing historical performance. Your financial objective, risk tolerance and investment horizon also matter, along with the following factors:
- Asset allocation: How much exposure the fund has to equity, debt and commodities, and how that allocation may change?
- Downside behaviour: Compare declines over similar periods to assess the fund’s response during the same correction.
- Recovery patterns: Examine how the fund behaved after a downturn, rather than focusing only on its initial decline.
- Investment objective: Consider whether you want to prioritise diversification across assets or a strategy that sifts between assets.
- Costs and risks: Review expenses, concentration and the fund’s investment approach before deciding.
You should review independent historical data and disclosures along with scheme information through specific fund houses like the ICICI Prudential AMC.
Final Thoughts
Neither multi-asset allocation funds nor balanced advantage funds can be declared a winner across market corrections without a historical analysis. Their performance depends on the asset allocation, investment decisions and market conditions. Rather than choosing a fund based only on how it performed during past market corrections, look at its investment strategy and performance across different market conditions.