Home / Mutual Funds / News /  Is it the right time to invest in dynamic asset allocation funds?

Dynamic asset allocation funds or balanced advantage funds (BAF) have gained traction in recent times. From January, these funds have been seeing inflows as compared to outflows in the previous year. As per data by the Association of Mutual Funds of India (AMFI), dynamic asset allocation funds/balanced advantage funds had recorded net inflows of 2,711 crore in March 2021. It had registered inflows of 2,005 crore in February and 658 crore in January.

What are these funds? Funds in dynamic asset allocation category are required to have investment in equity/debt that is managed dynamically. Asset management companies (AMCs) have the flexibility in managing these funds.

If you are a first-time investor or someone who has been looking to get into these funds, experts recommend that right now is the best time to do so.

The recent volatility has made investors look into diversifying their portfolio. Experts have been recommending dynamic asset allocation funds as these funds have the flexibility to choose when to adjust their allocations based on market conditions. There is no such lower or upper cap on the amount of exposure BAFs category can have in debt or equity.

Experts say these funds provide much needed diversification as needed in recent times after strong market run-up in equities after the pandemic crash.

Ashutosh Bhargava, Head Equity Research and Fund Manager of Nippon Mutual Fund, says investors are now looking to diversify into an asset class levels that provide some kind of safety. He added on saying that these multi-asset funds do asset allocation between different types and also systematically allocate within the asset classes.

''We are strongly recommending clients and distributors to look into multi-asset funds like balanced advantage fund now. This is different compared to what we were recommending 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 register stable risk-adjusted returns as weights to different asset classes like equity, debt are assigned taking advantage of the prevailing market conditions to deliver higher returns.

Bhargava believes right now is a good time to switch or invest new money to asset allocation products for long-term goals. ''These funds should be a core part of most investors, but particularly suited for new investors as drawdowns are shallow and volatility around the returns is fairly limited. Balanced advantage funds give just that kind of risk adjusted returns.’’

Vinay Paharia, CIO Equities, Union AMC, also said they have been recommending BAF funds as they believe the way this category manages asset allocation using value as key component for allocation decisions. On a relative basis, dynamic asset allocation is the fund investors need to be least worried about, he added. "The only funds we have been recommending in the past 3-4 months is the Balanced Advantage Funds."

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

''This product is suitable for first-time investors as this doesn’t require time-to-time profit booking, addition as asset allocation is done by fund managers,’’ Tarun Birani, TBNG Capital Advisors said.

However, he said that one needs to be careful about the kind of strategy dynamic asset allocation fund managers are implying as they have different methods like booking value, price to earnings or momentum market indicators based on which the allocation is done.

For choosing a particular fund, Birani said that one can look at time horizons, delivering better than benchmark returns and such factors that will give an idea of how the fund has performed.

Dynamic asset allocation fund is also said to give benefit to first time investors or retired ones who are unsure of the market and how the market is going to behave. Experts suggest it is a good time for asset allocation products as there may be volatility and this is where these solutions are expected to thrive.


Saloni Kothari

Covers markets, personal finance and economy for Livemint and currently hosts the 'Millionaire On A Budget' podcast
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