Dynamic Asset Allocation Funds invest in a mix of stocks and FD-like instruments.
However, they keep changing this allocation based on the market conditions to provide you optimal returns with minimal risk.
What is Dynamic Asset Allocation (DAA)?
As per the Securities Exchange Board of India (SEBIs) new fund categorization regulation,
Dynamic asset allocation funds are the hybrid funds that invest across equity and debt in such a manner so as to minimize risk based on market trends.
It is mainly used by hedge funds, mutual funds, credit derivatives, index funds, principal protected funds, and other structured investment products.
Primarily, the working of the fund directly depends on the fund manager’s ability to match the right decision of asset allocation.
So with the market low or high, equity exposure of the fund is decided.
For instance: If the economy is not going good, then the investment manager using this strategy would reduce his equity exposure and would prefer more investments in interest-bearing securities or even sit on cash till the economy’s situation changes and vice versa.
Advantages:
Disadvantages:
These funds are best suited for the long- term Investors who though have a low-risk appetite but are ready to take a bit of risk to enjoy the returns from an equity-debt mix of assets in their portfolio.
So the investors can enjoy equity kind of returns but with a balanced portfolio. As this fund re-balances during volatility thus investors can rest in peace.
Tax Implication:
Even short-term gains are taxed at 15%, which is lower than the rate applicable on pure debt funds or bank deposits.
Disclaimer: All the views in the video are personal of the author not attributing to any one.