At the time of curating their portfolio, investors tend to weigh the pros and cons of different mutual fund categories. One mutual fund may be the right fit for you based on your risk appetite and financial goals, but not necessarily for everyone.
Here, we closely monitor the advantages of dynamic asset allocation funds in this article. For the unversed, we first describe what exactly dynamic asset allocation funds are.
What are dynamic asset allocation funds?
Also known as balanced advantage funds, these mutual funds are, in fact, a subset of hybrid mutual funds. They are completely flexible in determining the ratio of debt & equity. Investment in equity/debt is managed dynamically (0% to 100% in equity and 0% to 100% in debt instruments).
There are a total of 35 schemes in this category with total assets under management amounting to ₹3,18,121 crore. There was an inflow of ₹539 crore into these mutual fund schemes in the month of October against ₹1,688 crore in the previous month.
As a category, these mutual funds have delivered a return of 12.59% in the past three years and 5% in the past one year, according to Morningstar India data.
Why should you invest in these funds?
There are several advantages of investing in these funds:
I. Flexibility: Fund managers of these mutual funds can change the asset allocation ratio based on changes in market conditions. When the market is on a bull run, there could be a higher allocation to equities (up to 100%). On the contrary, when the market is bearish, a fund manager may decide to cut down equity allocation, even down to 0. This flexibility makes these schemes unique.
II. For those with high risk appetite: Being actively managed, these mutual funds are well-suited to investors with a high risk appetite. So, if you aim for massive wealth creation, you may decide to invest in these funds.
III. Hybrid approach: Being a subset of hybrid mutual funds, these schemes tick the box for those investors who want exposure to hybrid mutual funds. Therefore, if you are not too keen to invest in any other category of hybrid funds (e.g., flexi cap, equity savings, arbitrage, or aggressive hybrid), then you may choose to invest in dynamic asset allocation funds.
Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision.
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