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Business News/ Money / Personal Finance/  What are dynamic asset allocation funds, advantages of investing in them?

What are dynamic asset allocation funds, advantages of investing in them?

These are hybrid mutual funds with allocation to both equity and debt that keeps changing in tune with changing market conditions.

Dynamic asset allocation funds capitalise on the perks of diversification Premium
Dynamic asset allocation funds capitalise on the perks of diversification

Greek philosopher Heraclitus rightly prophesied that ‘the only constant in life is change’. And why not? After all, it brings novelty and diversity in the world around us. 

The world of investing is no different. To earn higher returns, it is vital to keep changing the composition of the portfolio from time to time. 

A category of funds that stands true to this philosophy of change is ‘dynamic asset allocation funds’, which are also known as balanced advantage funds.

Soo, what exactly are these funds?

Dynamic asset allocation funds are hybrid mutual funds that are highly dynamic in nature with a fair allocation to equity and debt assets.

These schemes are flexible in nature and keep altering their allocation to different asset classes based on the latest macro-economic trends and changing market conditions.

The changes in allocation to asset classes are done to earn higher returns, consequently fund managers tend to exit the worst performing assets and raise exposure to best performing ones at the same time.

Wealth advisors often emphasise the importance of maintaining the right ratio of equity and debt. This category of mutual funds strives to keep this ratio as optimum as possible.

As of now, there are 29 dynamic asset allocation mutual funds in the entire mutual fund (MF) space in India with assets under management (AUMs) amounting to Rs 2,04,997 crore, highest asset size among all hybrid schemes.

To put this figure in perspective, the second largest asset size among hybrid schemes is managed by 31 balanced hybrid funds with AUMs amounting to Rs 1.66 lakh crore. Other categories of hybrid mutual funds include conservative hybrid, multi asset allocation, arbitrage and equity savings funds.

Advantages of investing in these funds:

Higher returns: Since these funds keep changing their allocation to different asset classes, the scope of earning higher returns is high in their case.

Diversification: One of the key doctrines of investing is diversification. And dynamic asset allocation funds adhere to this in the true sense of the word.

As a category, dynamic asset allocation funds have given 15.90 percent return in the past one year, 13.99 percent in the past three years and 9.16 percent in the five years.

TenureReturns (%)

(Source: MorningStar; data as on July 16, 2023)

However, dynamic asset allocation funds have their share of disadvantages too. These include the following:

Costly to manage: Since dynamic asset allocation funds require an active fund management, they are quite expensive schemes to manage.

High transaction costs: By buying and selling assets too often, these funds tend to incur a higher transaction cost vis-à-vis other passive schemes such as index funds.


Here we explain the advantages of diversification.
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Here we explain the advantages of diversification.

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Published: 21 Jul 2023, 08:41 AM IST
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