Is this the right time to invest in dynamic asset allocation funds?


Dynamic asset allocation funds or Balanced Advantage Funds (BAFs) have gained ground in recent times. Since January, these funds have recorded inflows compared to the outflows of the previous year. According to data from the Association of Mutual Funds of India (AMFI), dynamic asset allocation funds / balanced benefit funds had recorded net inflows of ??2,711 crore in March 2021. He had recorded inflows of ??2,005 crore in February and ??658 crores in January.

What are these funds? Funds in the dynamic asset allocation category should invest in dynamically managed equities / debt. Asset management companies (AMS) have the flexibility to manage these funds.

If you are a new investor or someone looking to invest in these funds, experts recommend now is the best time to do so.

Recent volatility has prompted investors to diversify their portfolios. Experts recommend dynamic asset allocation funds because these funds have the flexibility to choose when to adjust their allocations based on market conditions. There is no lower or upper cap on the amount of exposure that the FBA category can have in debt or equity.

Experts say these funds provide much-needed diversification as was needed in recent times after the stock market’s surge following the pandemic crash.

Ashutosh Bhargava, head of equity research and fund manager at Nippon Mutual Fund, says investors are now looking to diversify into an asset class that offers some security. He added saying that these multi-asset funds make an asset allocation between different types and also systematically allocate within asset classes.

We strongly recommend that clients and distributors turn to multi-asset funds like the Balanced Advantage Fund now. It’s different from what we recommended 6-9 months ago, ” Bhargava added.

Asset allocation involves investing portions of money in different assets to balance risk. A dynamic asset allocation approach has the potential to achieve stable risk-adjusted returns by weighting different asset classes such as equities, debts are allocated taking advantage of existing market conditions to generate higher returns.

Bhargava believes that now is the time to spend or invest new money in asset allocation products for long term goals. These funds should be a staple for most investors, but particularly suitable for new investors as the drawdowns are shallow and the volatility around returns is quite limited. Balanced Advantage funds give exactly those kinds of risk-adjusted returns. ”

Vinay Paharia, CIO Equities, Union AMC, also said they recommend BAF funds because they believe this category manages asset allocation using value as a key element for allocation decisions. On a relative basis, dynamic asset allocation is the fund investors need to worry about the least, he added. “The only funds we have recommended in the past 3-4 months are the Advantage Balanced Funds. “

Fund managers take various factors into consideration before making such allocations based on performance and market conditions. Most asset managers follow a rebalancing strategy for the dynamic asset allocation category.

“This product is suitable for new investors as it does not require recognition of profits from time to time, as asset allocation is done by the fund managers,” said Tarun Birani, TBNG Capital Advisors.

However, he said that care should be taken with the type of strategy that dynamic asset allocation fund managers involve, as they use different methods such as book value, price / earnings ratio or market indicators. dynamic market on the basis of which the allocation is made.

When choosing a particular fund, Birani said one can look at time horizons, providing higher returns than the benchmark and factors that will give a sense of the fund’s performance.

The dynamic asset allocation fund is also said to benefit new investors or retirees who are unsure of the market and how the market is going to behave. Experts suggest now is the right time for asset allocation products as there can be volatility and this is where these solutions should thrive.

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