Dynamic Asset Allocation Funds or Balanced Advantage


It is the one fund where you can see the diversification of all assets

These funds follow the investing strategy that allows them to adjust the mix of equity and debt

In recent months as the economy is witnessing a slump, many investors are afraid of investing the majority of their assets in a single MF. In this scenario, they can easily opt for the list of dynamic asset allocation funds to earn guaranteed returns. It is the one fund where you can see the diversification of all assets and controlled performance over any kind of prevailing market volatility through mastery in multiple investment channels. Here we will highlight the various aspects of Dynamic Asset Allocation Funds.

What are Dynamic Asset Allocation Funds?

According to the new classification of mutual funds by the Securities and Exchange Board of India (SEBI), Dynamic asset allocation funds are a type of balanced funds or Hybrid Funds, where the investment in equity and debt instruments is managed dynamically without any caps or minimum exposure limits. Most of the funds are invested and spread across various sectors, including equity funds, real estate, stocks and bonds.

Each of these funds is managed by a professional manager who uses various quantitative criteria to switch from one asset class to another based on their different valuation metrics to ensure that the quality of investments is not hampered. Some funds also use proprietary quantitative models to reallocate assets. These models help their funds to eliminate human biases while making an investment decision. A dynamic asset allocation fund is meant for all consumers regardless of their risk threshold.

Purpose of Dynamic Asset Allocation Funds

In an uncertain market, it is the best and most suited investment option and a mechanism to beat off the market slumps. As the investments are widely spread out, the dynamic funding mechanism is a better option compared to static allocation funds. The primary advantage is their built-in dynamic nature that whenever an instrument is malfunctioning, the money invested in it is often shifted to another instrument that is performing better.

Who Should Invest?

Dynamic asset allocation Mutual Funds are known for their steady and recurring returns. Therefore, it is highly recommended for those who are looking for assured returns after the end of tenure. It is also ideal for those who have limited funds to invest in multiple sectors.

Cautious investors having a relatively low-risk appetite and want to benefit from the long term potential of equities or the investors sitting on the sidelines, waiting for appropriate market valuation level to pour in money in equities or the investors planning for their long-term financial goals such as retirement could look to invest in these funds.

How Do Dynamic Asset Allocation Funds Work?

These funds follow the investing strategy that allows them to adjust the mix of equity and debt component as per the prevailing economic conditions and the stock market movement to help mitigate risk. For deciding the right debt-equity mix, these funds usually consider metrics such as equity valuations, medium to long term outlook of the asset class, interest rate cycle, etc.

The fund managers use the portfolio model derived from various fundamental and technical indicators to increase or decrease allocation to equity. These calculation methodologies could vary among different fund houses. Therefore, ideally, when valuations are low, fund houses increase the equity component in the portfolio and vice versa.

Why Invest in Dynamic Asset Allocation Funds?

  • These funds help investors participate in the long-term growth potential of equities but with much lower volatility.
  • They aid in managing the equity and debt allocation systematically, taking the valuations into consideration and help in making unbiased asset allocation decisions.
  • Past data suggest that when equity valuations are expensive, sharp corrections in the market occur. These funds could help in reducing downside significantly due to their strategy of maintaining low equity allocation at higher valuation levels.
  • Potential to substantially improve the risk-adjusted return for medium to long-term investors.
  • Dynamic Asset Allocation Funds provide a tax-efficient and cost-efficient solution and have taxation similar to equity-oriented schemes.

Every investment decision seeks to figure out the right balance between different asset classes considering unpredictable market conditions. Dynamic asset allocation funds help in providing a systematic mechanism that intends to combine the unique benefits of equity and debt effectively considering market valuation. This strategy is ideal for investors seeking stable risk-adjusted returns with lower drawdown over long-term investment horizons. Talk to your advisor to know more.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh