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Best Dynamic asset allocation funds are a class of hybrid funds whose asset allocation is made towards a variety of asset classes such as equities, bonds, real estate, and so on. We have covered the following int this article on the best dynamic asset allocation funds:
Dynamic asset allocation funds are hybrid funds that invest in securities across equity and debt markets along with real estate and other asset classes. These funds are actively managed; the fund manager seeks to encash on the available opportunities across asset classes and maximise the return on investment. The diversified portfolio of these funds ensures that there are no significant losses due to the underperformance of one particular asset or sector. Therefore, if you are looking to diversify your portfolio, then you may consider investing in dynamic asset allocation funds. These funds are known to offer stable and periodic returns over time.
The following table shows the best-performing dynamic asset allocation funds based on the past 3-year and 5-year returns:
Since dynamic asset allocation funds invest in securities across various asset classes, it naturally gives investors the benefit of diversification. Therefore, anyone who is willing to diversify their portfolio may consider investing in these funds. Also, as these funds have a track record of providing regular returns, investors looking to earn periodic returns may invest in these funds.
If you lack time to manage your portfolio, then you may consider investing in dynamic asset allocation funds as the fund manager and his team of analysts and market researchers pick only those securities that are performing well. This alleviates the need to time markets as the fund manager always seeks to make the most out of the market movements.
The dividends offered by all mutual funds are added to your overall income and taxed at your income tax slab rate. This is known as the classical way of taxing dividends. The taxation of capital gains of dynamic asset allocation funds depends on the portfolio’s equity exposure. If the fund’s equity exposure exceeds 65%, then the fund is taxed like any other equity fund plan. If not, then the rules of taxation of debt funds apply. The following table shows the applicable rates:
|Equity-oriented funds||Holding period: Less than 12 months Taxed at 15% irrespective of the income tax slab.||Holding period: 12 months and more Up to Rs 1 lakh is tax-exempt. Anything above 1 lakh is taxed at 10%.|
|Debt-oriented funds||Holding period: More than 36 months Added to your overall income and taxed at the income tax slab rate.||Holding period: 36 months and more Taxed at 20% after indexation.|
The risk levels associated with dynamic asset allocation funds are on the lower as compared to other mutual funds as these funds diversify their portfolio with assets across various classes. However, like any other mutual fund scheme, these funds are also not absolutely safe. The equity assets in the portfolio always possess concentration risk and volatility risk. On the other hand, the debt portion of the portfolio is affected by liquidity risk, interest rate risk, and credit risk. However, the diversified portfolio of these funds mitigates the associated risks to a great extent.
You have to consider the following before investing in a dynamic asset allocation fund:
a. Investment horizon It is advisable that you have an investment horizon of at least three years if you are to invest in a dynamic asset allocation fund. This gives your investments to go through market cycles and offer stable returns in the long run.
b. Risk level No investment is absolutely safe. The same applies to a dynamic asset allocation fund. Since the fund is exposed to equities, it makes it suitable for those investors who are willing to take some risk. Dynamic asset allocation funds are apt for investors who are ready to bear low to medium risk.
c. Returns Dynamic asset allocation funds are known to offer decent returns in the long run. Since the fund does not invest its entire portfolio in equity and equity-linked investment, the returns can be curtailed.
Therefore, these funds are suitable for those looking to diversify their portfolio to balance the risk-reward ratio. Dynamic asset allocation funds offer higher returns than debt funds but lower than a pure equity fund.
The following are the most significant advantages of investing in dynamic asset allocation funds: