Dynamic asset allocation fund: What is balanced advantage fund?

What is dynamic asset allocation?

Dynamic asset allocation is an investment strategy where the proportion of assets in a portfolio is frequently tweaked based on the market conditions and the investment goals. The investment portfolio is regularly rebalanced to get the best returns while managing the risks.

How do dynamic asset allocation funds work?

Dynamic Asset Allocation Funds invest money in a mixture of equity, debt securities, and cash reserves. The fund managers constantly track market trends, interest rates, and other economic factors and adjust the proportions of these investments accordingly. Every time an investment underperforms, the funds are moved to another performing well. This allows the funds to deliver consistent returns while focusing on controlling risks.

Features of dynamic asset allocation funds

Active management: Expert fund managers actively rebalance the portfolio in which your money is invested. Portfolio allocation is defined by some model-based triggers.
Flexible allocation: Money is allocated to equity, debt, and cash based on market conditions, and this proportion changes constantly.
Risk mitigation: The fund attempts to keep the risk to a minimum while providing steady returns.

Advantages of dynamic asset allocation funds

Diversification: Your money gets invested across different asset classes depending on market conditions.
Professional management:
Risk control: Reduces your exposure to underperforming investments, protecting against significant losses.

Disadvantages of dynamic asset allocation funds

Expensive: Due to the active involvement, you may need to pay higher fees.
Higher transaction charges: Frequent rebalancing can lead to increased transaction costs.

Things to consider before investing

Past performance: Check the fund's historical performance, especially during market downturns, to judge the ability to balance risk and returns.
Expense ratio: Check the fund's expense ratio. It is higher than passively managed funds, but select a fund with comparatively lower fees.
Tax implications: See whether the fund is classified as equity or debt-oriented to check tax impact.
Manager track record: Assess the credibility of the fund manager by checking their experience and education.

How to invest in dynamic asset allocation funds?

Compare different funds based on performance, expense ratio, and fund manager expertise.
Use a Mutual Fund platform or broker, or directly invest through the fund house.
Complete the KYC process.
Decide between a lump sum investment or a Systematic Investment Plan (SIP).

Taxation rules of dynamic asset allocation funds

Equity Funds: If the fund's equity investment exceeds 65%, it is taxed like an Equity Fund:
- Short-term capital gains: Taxed at 20%.
- Long-term capital gains: Gains above ₹1,25,000 are taxed at 12.5%.

Debt Funds: If the equity investment is less than 65%, it is taxed like a Debt Fund.
- Funds purchased before April 1, 2023: Short-term gains are taxed at regular slab rates. Long-term gains are taxed at 20% with indexation.
- Funds purchased after April 1, 2023: All gains are short-term and taxed at regular slab rates.

Also Read: Mutual Fund vs. SIP: What’s the difference

Conclusion

Dynamic Asset Allocation Funds can be a great addition to your portfolio if you are looking for stable returns with balanced risk. However, don't forget to consider the tax impact. expense ratio, and past performance of a fund before investing money.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.