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What is Dynamic Asset Allocation Mutual Fund?
Dynamic asset allocation funds are also known as balanced advantage funds. These are kind of hybrid funds as they invest in multiple asset classes like equity, debt, and commodities. These funds are one the best under this category to invest in as the fund manager has the flexibility to change the portfolio allocation according to the market conditions. Like in favorable market conditions, the allocation may shift to equity to maximize returns and during market falls more money shifts to debt class. The average return for 3 years remains between 10-12%, and it is classified as a moderately low-risk investment option.
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Dynamic Asset Allocation
Security Board of Exchange (SEBI) has not set any limit for the allocation percentage of balanced advantage funds. These funds have the freedom to allocate any percentage of their assets, ranging from 0% to 100%, and can invest in both equity and debt.
In dynamic asset allocation, the fund manager changes the portfolio based on the market condition.
For Example- During a bear market when equities are falling, the fund manager might increase the allocation in debt. Similarly, if the Equity is doing well, the fund manager might increase the allocation in equity.
There are multiple benefits balanced advantage Mutual Fund offers, here are some of them:
Dynamic asset allocation gives flexibility to fund manager that allows them to change their assets based on market volatility and opportunities. This allows them to make quick decisions that maximize returns.
This balanced advantage maintains the balance between their portfolio. In a bear market, a manager might put more money into debt and less into equity. However, when there is a bullish market a manager might choose to put less money into debt and more into equity.
Dynamic asset allocation seeks to offer more stable returns over time by allowing investors to move their money between various asset classes. This helps investors achieve a balance between risk and reward, potentially enhancing long-term performance.
It reduces risk by shifting investments to safer assets during market downturns and improving allocation to growth assets during advantageous market conditions.
Dynamic asset allocation funds offer to a diverse group of investors with various risk tolerances and investment objectives. Whether conservative or aggressive, investors can discover a good alternative that matches their preferences and goals.
It allows investors to capitalize on developing ideas and growth-oriented industries, thus enhancing overall portfolio performance.
Here are some simple steps to invest in dynamic asset allocation with mysiponline.com:
It is always important to take the necessary precautions before investing in these kinds of Hybrid Mutual Funds. In order to save you from making certain mistakes here are simple points that should be kept in mind.
Trying to predict when the market will go up or down and constantly changing how you invest your money can cause you to miss the chances to make money and end up spending more on buying and selling investments.
These two emotions are frequently present and might have an impact on investing decisions. During market downturns, fear may cause investors to sell their holdings quickly, while greed may drive them to pursue large gains without taking related risks into account.
Failing to adequately consider and manage risks associated with dynamic asset allocation can expose your portfolio to unnecessary volatility and potential losses.
Confirmation bias is when investors only look for information that agrees with what they already believe, while ignoring anything that disagrees. This can make them miss important facts and make bad investment decisions. It's crucial for investors to stay open-minded and consider all information before making decisions.
Failing to periodically rebalance your portfolio to maintain the desired asset allocation can lead to deviations from your investment objectives over time.
Using dynamic asset allocation techniques to invest might result in less than ideal-results if they are not in line with your time horizon, investment objectives, and risk tolerance.
Successful dynamic asset allocation requires managing emotions, mitigating risks, rebalancing regularly, avoiding confirmation bias, and aligning investments with goals.
The capital gains from dynamic asset allocation funds are taxed differently depending on their equity holdings. If the equity investment is over 65%. On the other, the debt fund tax rules are implemented if the equity investment is less than 65%. Let’s understand how the tax implications are calculated with the table given below -
Funds | Short Term (Less than 12 months) | Long Term (12 months and more) |
---|---|---|
Equity Based Funds | Taxed at 15% irrespective of Income Tax Slab | Up-to Rs 1 Lakh tax-exempt; above 1 Lakh Taxed at 10% |
Debt Based Fund | Added to overall income,taxed at income tax slab rate | Taxed at 20% after indexation (36 months or more) |
Short-term (Less than 12 months): Profits are taxed at a flat rate of 15%, regardless of the investor's income tax slab.
Long-term (12 months and more): Profits up to Rs.1 lakh are tax-exempt. Any gains above Rs.1 lakh are taxed at a rate of 10%.
Short-term (Less than 36 months): Profits are added to the investor's overall income and taxed at the applicable income tax slab rate.
Long-term (36 months and more): Profits are taxed at a rate of 20% after indexation, which adjusts the purchase price for inflation.
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