A unique fund with a double benefit
The main feature of this fund is its ability to switch asset classes within the asset allocation; even faster than hybrid funds because this factor aims to select small and mid capitalization stocks and the gains that the equity component can provide are much higher and the associated risk is well mitigated by the debt investment.
It offers both growth and security through equity investments and debt investments. In reality, what they actually provide you as an investor comes back with protection. The fund’s equity investments allow you to take advantage of the long-term growth potential of equities, while the fund’s debt investments cushion the portfolio’s decline in the event of a stock market crash.
There is no need to time the market
One of the nicest things about this fund is the method by which investments are made.
Equity investments are made based on the fund management’s equity forecasts and other predetermined investment parameters. As a result, as the markets rise, equity investments also increase, allowing you to make the most of the growth in stock prices.
If markets begin to decline, the fund manager may immediately begin selling equity investments in the portfolio and buying debt securities.
In this way, the downside of your portfolio is well protected and you do not have to worry about when to invest in the stock markets.
Contributes to portfolio diversification
A dynamic asset allocation fund provides automatic diversification since it not only invests in stocks and debt securities, but also switches between them based on market conditions.
This is one of those funds that is all about the season and the investor. This means it can help you stay involved in stocks during market ups and downs, as well as providing crucial downside protection through debt investing.
Therefore, investors of different types, with varying risk and return needs, could potentially invest in a dynamic asset allocation fund.
It is suitable for all types of investors
A dynamic asset allocation fund is suitable for all types of investors. Whether you are a beginner, a seasoned investor or a long-term investor.
If you are a beginner investor, this allows you to invest in stocks without taking on an equivalent degree of risk. If you are a seasoned investor, this allows you to increase your overall equity allocation while minimizing risk.
It’s tax efficient
Dynamic asset allocation funds are taxed like equity mutual funds since they have an average equity exposure of 65% or more, which allows them to be taxed like other equity funds . This means that although short-term profits (less than one year) are taxed at 15%, long-term gains (investments sold after one year) are taxed at 10%.
As a result, they appear to enjoy tax-free returns if the holding period exceeds one year. If they don’t, they will be subject to short-term capital gains tax. In other regimes, dividends are exempt from tax and the tax treatment is the same as for debt funds if the average exposure is less than 65%.