For a lay investor, it is understandable to opt for equity for wealth creation and fixed income instruments for assured returns. But what would you do if you want considerable wealth creation along with safety of funds?
One advisable way is to opt for hybrid mutual funds, which invest in a mix of debt and equity. Between hybrid funds, there are a number of sub-categories as well such as conservative hybrid funds, multi asset funds, equity savings funds and aggressive funds based on their equity allocation.
One sub-category, among hybrid funds, which one of the most popular and highly recommended is that of dynamic asset allocation funds or balanced advantage funds.
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What are dynamic asset allocation funds?
Balanced Advantage Funds refer to the schemes which invest in a blend of securities and fixed income instruments. The allocation of equity and debt is managed dynamically (i.e. 0 to 100 per cent in equity & equity-related instruments and 0 to 100 percent in debt instruments), as per the Sebi’s categorisation of mutual fund schemes.
These schemes keep changing their allocation based on the market conditions in order to give optimal returns with minimal risk. These are also referred to as dynamic asset allocation funds.
Why should you invest in them?
In the entire mutual fund universe, there are 33 schemes in the category of balanced Advantage Funds with total assets under management amounting to ₹2.56 lakh crore.
This number is highest among all other categories of hybrid schemes. This is closely followed by balanced hybrid funds which are 31 in number with total AUMs of ₹2.02 lakh crore.
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Sridharan Sundaram, a Sebi-registered investment advisor and co-founder of Wealth Ladder Direct, said, “Some of the top-managed balanced advantage fund have given 10-12 percent dividend between 2013 to 2018. Because of that, they have garnered huge inflows. Secondly, portfolio rebalancing of stocks is done at the mutual fund level rather than at the investor level. As a result these schemes tend to deliver superior returns.”
“Common investors always are in dilemma which mutual funds to choose from different categories of mutual funds for their financial goals. Amid market volatility, investors can find suitable mutual funds for investment in form of dynamic asset allocation fund. These funds allow investment in equity, debt, real estate and even gold in one fund. So here, allocation to different asset classes is decided by fund manager so investors do not need to worry about this,” says Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services.
Since these funds are actively managed, allocation in each asset class depends on market conditions and fund manager skills. Some funds are aggressive while others are defensive in nature.
“Investors can choose the fund as per their risk-taking ability and tenure of the goal,” she added.
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Published: 02 Jun 2024, 04:39 PM IST