5 reasons why you should invest in dynamic asset allocation funds

In life, we are often forced to make choices. Arts or commerce, CA or MBA, business or start-up job, debt or equity and so on. Now, in most cases, you are forced to choose between the two options. However, when it comes to making investment decisions, you no longer have to choose between debt and equity. In fact, you can invest in both debt and equity securities through one fund. Such a fund is called a Dynamic Asset Allocation Fund (DAAF). There are two important characteristics of DAAF. First, they are hybrid funds that invest in both debt and equity investments, and second, they are very flexible in terms of investments. This means that depending on market conditions, they can quickly increase or decrease their portfolio holdings and switch between equity and debt investments.

5 reasons to invest in DAAF:

  1. A fund with double advantages: A DAAF gives you the best of both worlds. It offers you growth through investments in stocks and protection through investments in debt. In fact, what they essentially offer you, as an investor, are returns with protection. Investing in stocks in the fund helps you take advantage of the long-term growth potential of stocks while investing in debt in the fund protects the portfolio in the event of a downturn in the stock markets.
  2. No need to time the market: One of the best things about this fund is the way the investments are made. Equity investments are made on the basis of the fund manager’s equity outlook and other predetermined investment criteria. So when the markets go up, investments in stocks increase so that you can get the most out of the rise in stock prices. Now, if the markets start to go down, the fund manager can immediately start selling the portfolio’s equity investments and start buying debt investments. This way, the downside of the portfolio is well protected and you don’t have to worry about finding the right time to invest in the stock markets.
  3. Tax efficient: Since these funds have an average equity exposure of 65% or more, they are taxed as equity mutual funds. This means that while short-term gains (less than one year) are taxed at 15%, long-term gains (investments sold after 1 year) are taxed at 10%. More importantly, only long-term earnings greater than R. 1 lakh are taxed at 10%. So if you sell your investment in 2 years and make a profit of Rs 1,10,000, you would pay 10% tax on Rs 10,000 (110,000 – 100,000).
  4. It is aimed at any type of investor: A dynamic asset allocation fund is suitable for all types of investors.
    • If you are a beginner, this gives you the opportunity to invest in stocks without taking the same risk.
    • If you are a seasoned investor, this gives you the opportunity to increase your overall equity allocation while reducing risk.
    • If you are heavily influenced by your own behavioral biases and are unable to consistently make the right investment decisions.
    • If you want to maintain an advantage regardless of the rise or fall of the stock markets.
  5. Help with portfolio diversification: It is always a good idea to create a well-diversified portfolio so that sudden movements in one type of investment do not have a very big impact on the overall health of your portfolio. Diversification primarily means dividing your portfolio investments between low and high risk investments based on your risk profile, return requirement and investment period. Finding the right mix of investments and determining the allocations can be a difficult task. A dynamic asset allocation fund offers you automatic diversification as it not only invests in equity and debt investments, but also continues to switch between them depending on the market environment. Marlet.

It is one of those types of funds that is all season and all investor by nature. This means that it can help you stay invested in stocks during the ups and downs of the stock market and can provide the protection you need in the event of a downturn through investments in debt. Thus, all types of investors with varying risk and return requirements can potentially invest in a Dynamic Asset Allocation fund.

An investor education initiative by Edelweiss Mutual Fund
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Investments in mutual funds are subject to market risks, carefully read all documents relating to the program.


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