“It has magnesium,” he said.

It did—just 4% of the daily requirement. A week later, nothing changed.

A familiar mistake investors make with multi-asset funds: assuming that presence equals protection. But like the multivitamin pill with a trace of magnesium, the actual impact on the portfolio might be too small to matter. Let’s break this down.

The illusion of diversification

Consider a multi-asset fund that holds equity, debt, and gold with allocations of 65%, 25%, and 10%, respectively. On paper, this seems well-diversified. You invest a significant 20% of your total portfolio in this fund. But that means your actual gold exposure is just 2% (10% of 20%).

That 2% holding in gold, often seen as a portfolio hedge or risk diversifier, doesn’t offer any meaningful cushion during periods of market stress. You may own gold, but its presence is nowhere close to being an effective strategic allocation. This is where many investors go wrong: by confusing presence with proportion.

What these funds really do well

Let’s not throw the baby out with the bathwater. Multi-asset funds often get overlooked, but they deserve far more credit for the value they bring—especially to retail investors who may lack the time, expertise, or emotional discipline to manage several asset classes on their own.

These funds streamline portfolio management by automatically rebalancing among equity, debt, and even commodities like gold, ensuring that your allocation stays aligned with your goals. This built-in mechanism effectively buys low and sells high, all without requiring ongoing intervention.

Since rebalancing happens inside the fund, investors also enjoy tax efficiency compared to switching between separate funds, which would trigger capital gains tax.

They also offer meaningful tax efficiency since rebalancing inside the fund does not trigger capital gains tax for the investor, unlike switching between separate funds in a self-managed setup.

Beyond the structural advantages, multi-asset funds deliver an important behavioural benefit. Investors often fall prey to emotional decision-making—chasing performance when markets rise or panicking during downturns. A multi-asset fund removes this temptation by enforcing a disciplined, rule-based approach that prioritizes long-term logic over short-term sentiment.

However, it’s worth noting that these strengths truly shine only when such a fund represents a meaningful portion of your overall portfolio; otherwise, its benefits may be diluted.

Why a line item isn’t a strategy

In portfolio reviews, I often hear:

“Yes, I’ve already got diversification — I’ve added a multi-asset fund.”

But unless that fund carries sufficient weight, you’ve only diversified the line items in your fund statement, not the actual behaviour of your portfolio. You can’t expect downside protection, volatility smoothing, or asset-class balancing unless the allocation is large enough to influence outcomes.

The point is that multi-asset funds are not a magic solution. They work when treated as a core allocation, not an accessory.

Rethinking allocation

If you’re going to use a multi-asset fund, don’t just “own” it; allocate to it meaningfully.

For example, let’s say you want at least 5% of your total portfolio in gold for downside protection. If the multi-asset fund you’ve chosen has only 10% exposure to gold, then it must comprise at least 50% of your total portfolio to give you the desired 5% gold allocation.

Anything less, and the exposure is just too diluted to matter. The alternative approach is to have a desired allocation to a specific asset, in this case, by allocating 5% of the portfolio to a gold fund.

Multi-asset funds are best used as a core portfolio vehicle, where the fund handles asset allocation and rebalancing automatically, rather than as a tactical, satellite holding.

Conclusion: Diversification with intent

Taking a multivitamin doesn’t treat a deficiency if the required nutrient is only present in trace amounts. Similarly, a fund that holds multiple assets doesn’t help unless your allocation to it is deep enough to make a difference. This is true not only for a multi-asset fund but for any new product you want to invest in.

True diversification is not about adding more line items; it’s about understanding how much of each component you really hold and whether that amount can move the needle when it matters.

Saurabh Mittal is a registered investment advisor and founder of Circle Wealth Advisors Pvt. Ltd. Views are personal.