Dynamic asset allocation mutual funds, or balanced advantage funds, are a type of hybrid funds which invest across sectors including equity funds, real estate, stocks and bonds and change their allocation from time to time.
They are highly diversified in nature, and that's why it is highly unlikely for them to suffer losses during a bearish phase. They are considered best suited during an uncertain market. They invest not only in equity but also in real estate and bond markets.
In these funds, the fund manager tends to switch their allocation to the respective asset class based on the market movements. For instance, when the fund manager feels that equity valuations are attractive then the allocation to equities is raised and the corresponding allocation to debt is reduced.
According to the latest AMFI (Association of mutual funds in India) data for the month of August, there are 26 schemes in this category i.e., more than the number of conservative hybrid funds (21) but lower than the number of balanced hybrid funds (32).
In the month of July itself, a new scheme in this category was rolled out by Mirae Asset Mutual Fund, taking the total number of schemes to 26. This scheme closed for subscription on August 3.
While speaking about Mirae Asset Balanced Advantage Fund, the fund house’s CEO Swarup Mohanty had said, “It seeks to preserve investor participation throughout the market cycles and aims to generate reasonable performance over the long run.”
|No of schemes||26|
|Inflow in Aug||₹850.9 crore|
|Inflow in July||₹553.9 crore|
|AUMs on Aug 31||₹1.92 lakh crore|
The overall inflow for the month of August in all the category of dynamic asset allocation funds is ₹850.9 crore, and net assets under management (AUMs) as on Aug 31 stood at ₹1,92,369.27 crore.
Why are these schemes becoming popular?
Financial advisors of all hues tend to recommend investing in these funds, particularly during the uncertain market conditions.
“They are getting popular because they are dynamic in nature, and they keep tweaking the allocation based on the P/E (price to earnings) and P/B (price to book value) ratio. For instance, when the P/E ratio is too high then they move funds from these stocks to debt. This rebalancing is a scientific approach towards creating wealth over a long period of time,” said Sridharan Sundaram, Founder of Wealth Ladder Direct.
“So, they are good for investors who have a high-risk appetite and can take high risk, one can explore the funds which invest in REITs apart from equity and debt,” he further added.
Five-year returns by the top-performing schemes
|Fund scheme||5-year-return (%)|
|Edelweiss Balanced Advantage Fund||12.48|
|HDFC Balanced Advantage Fund||12.33|
|Sundaram Balanced Advantage Fund||11.36|
|Nippon India Balanced Advantage Fund||9.80|
(Direct returns as on Sept 15)
However, this does not mean that one should invest in multiple schemes under this category, argues Mr Sundaram.
“Upon looking at the perks of investing in these funds, one must make sure that one does not invest in multiple funds under the same category,” he cautioned.
Zubin Daboo, head of marketing, Epsilon Money Mart says that these funds are gaining popularity because the uncertainty surrounding equity markets has increased.
“The reason why dynamic allocation funds are gaining popularity is the uncertainty surrounding equity markets has increased even further, thanks to the economic situation in the US, the ongoing Russia-Ukraine conflict and many more reasons, hence a fund that switches between equity and debt is more attractive to investors who want to invest in equities but don’t want to take undue risk on their investments by investing in a pure equity fund,” said Zubin Daboo, head of marketing, Epsilon Money Mart.
Deepesh Mehta from Happy Investor Finserv also told MintGenie in an interview that balanced advantage funds can help investors tide over inflationary risks.