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, corporate employment or start-up, 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. You can actually invest in both debt and equity instruments through a single fund. Such a fund is called a dynamic asset allocation fund (DAAF). The DAAF has two important characteristics. First, they are hybrid funds that invest in both debt securities and equities, and second, they are very flexible in terms of their 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 why you should invest in DAAF:

  1. A fund with dual benefits: A DAAF gives you the best of both worlds. It offers you growth through equity investments and protection through debt investments. In fact, what they essentially offer you, as an investor, are returns with protection. The fund’s equity investments help you benefit from the long-term growth potential of equities while the fund’s debt investments protect the portfolio on the downside in the event of a stock market downturn.
  2. No need to time the market: One of the best things about this fund is the way investments are made. Equity investments are made based on the fund manager’s equity outlook and other predetermined investment criteria. So when the markets are up, stock investments increase so that you can make the most of rising stock prices. Now, if the markets start to fall, the fund manager can immediately start selling equity investments in the portfolio and start buying debt securities. 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 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 1 year) are taxed at 15%, long term gains (investments sold after 1 year) are taxed at 10%. More importantly, only long-term earnings above 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 will pay 10% tax on Rs 10,000 (110000 – 100000).
  4. It is aimed at all types of investors: A dynamic asset allocation fund is suitable for all types of investors.
    • If you are a beginner, it gives you the opportunity to invest in stocks without taking so much 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 good investment decisions.
    • If you want to maintain an edge regardless of whether the stock market goes up or down.
  5. Help with portfolio diversification: It’s always a good idea to create a well-diversified portfolio so that sudden moves in one type of investment don’t have a huge impact on the overall health of your portfolio. Diversification primarily means allocating your portfolio investments between low and high risk investments based on your risk profile, return requirements and investment time frame. Getting the right mix of investments and determining allocations can be a difficult task. A dynamic asset allocation fund gives you automatic diversification because it not only invests in equity and debt investments, but also continues to switch between them depending on the environment. of the market.

It’s one of those types of funds that are all-weather and all-investor in nature. This means it can help you stay invested in stocks during stock market ups and downs and can provide needed downside protection through debt investments. 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 risk, read all plan documents carefully.


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