Best Dynamic Asset Allocation or Balanced Advantage Funds
About Dynamic Asset Allocation Mutual Funds
Dynamic Asset Allocation Funds (DAAFs) are a new concept in the Indian mutual fund industry. The investment objective of DAAFs is to provide investors with long-term capital appreciation while minimising the risk of capital loss. These funds have gained popularity in recent years due to their unique investment strategy.
It allows investors to take advantage of market fluctuations while minimising risk. Dynamic Asset Allocation Funds are funds that automatically adjust their portfolio allocation based on market conditions. These funds invest in a mix of equity and debt securities. They usually adjust their portfolio by investing in equity securities when the market is bullish and in debt securities when the market is bearish.
How Do Dynamic Asset Allocation Funds Work?
Dynamic asset allocation funds offer significant advantages in uncertain market conditions. They grant fund managers enhanced flexibility in portfolio management, making them an excellent choice for adapting to market fluctuations. In extended bear markets, these funds can pivot towards debt-based assets, ensuring a steady stream of returns for investors.
Conversely, during accumulation or uptrend phases in the market, fund managers have the latitude to allocate more resources to equity-related securities, potentially amplifying returns. These funds rely on model-based triggers to dynamically oversee equity and debt allocations, enabling agile responses to market dynamics.
Features of Dynamic Asset Allocation Funds
Dynamic mutual funds have several features that distinguish them from traditional mutual funds. Here are some of the key elements of DAAFs:
- Flexible asset allocation: Dynamic Asset Allocation Funds invest in a combination of equity and debt securities, but not at a fixed percentage. The investment managers of DAAFs may use a quantitative approach to determine asset allocation based on variables such as market valuations, interest rates, and economic indicators.
- Active management: Unlike traditional mutual funds that follow a fixed asset allocation strategy, Dynamic Asset Allocation Funds are actively managed. The fund managers monitor market conditions and adjust the allocation of assets accordingly.
- Risk management: Dynamic Asset Allocation Funds aim to minimise risk by investing in a mix. The fund’s asset composition will change according to the market to minimise risks.
- Potential for higher returns: Dynamic Asset Allocation Funds have the potential to provide higher returns than pure equity or debt funds. Investment managers use a mathematical model to determine the optimal mix of equity and debt securities, which can help in generating higher returns.
- Suitable for long-term investors: Dynamic Asset Allocation Funds are suitable for long-term investors who want to take advantage of market fluctuations while minimising risk. These funds require a longer investment horizon to deliver returns.
Advantages of Investing in Dynamic Asset Allocation Funds
Dynamic Asset Allocation Funds are designed to deliver optimum returns in any market condition. The benefits offered by Dynamic Asset Allocation Funds are as follows:
- Minimises risk: Dynamic Asset Allocation Funds aim to minimise risk by investing in a mix of equity and debt securities. The allocation of assets in these funds is not fixed and varies based on market conditions, which helps to minimise risk.
- Provides flexibility: Dynamic Asset Allocation Funds provide flexibility to investors by allowing them to take advantage of market fluctuations. The investment managers of these funds use a quantitative approach to determine asset allocation, which is based on variables such as market valuations, interest rates, and economic indicators.
- Offers potential for higher returns: Dynamic Asset Allocation Funds have the potential to provide higher returns than traditional equity or debt funds. The investment managers of these funds use a mathematical model to determine the optimal mix of equity and debt securities, which can help to generate higher returns.
Risk Involved in Dynamic Asset Allocation Funds
While Dynamic Asset Allocation Funds can potentially provide higher returns than traditional fixed allocation funds, there are several risks associated with these types of funds that investors should be aware of:
- Market risk: Dynamic Asset Allocation Funds are subject to market risk, which means that their value can fluctuate based on the performance of the underlying securities in the portfolio.
- Asset allocation risk: Dynamic Asset Allocation Funds rely heavily on asset allocation strategies to generate returns. If the manager’s asset allocation decisions are incorrect, the fund’s performance may suffer.
- Performance chasing risk: Some Dynamic Asset Allocation Funds may be more susceptible to performance chasing, where managers may be tempted to chase returns by investing in assets that have performed well recently. This can result in suboptimal asset allocation decisions and lower returns.
- Cost risk: Dynamic Asset Allocation Funds may have higher fees than traditional funds due to the active management and research involved in making investment decisions.
Investors should carefully consider these risks before investing in Dynamic Asset Allocation Funds and should consult with a financial advisor or rely on a trusted broker like Angel One to carefully manage their funds.
Factors To Consider Before Investing in Dynamic Asset Allocation Funds
- Investment Goals: Determine your financial objectives, such as long-term wealth accumulation or capital preservation, as this will guide your choice of dynamic asset allocation funds.
- Risk Tolerance: Assess your risk tolerance to ensure the fund’s volatility matches your comfort level, as these funds can vary in risk exposure.
- Fund Manager Expertise: Research the fund manager’s track record and expertise in tactical asset allocation, as their decisions will significantly impact your returns.
- Costs and Fees: Evaluate the fund’s expense ratio and any additional fees, as high costs can erode your returns over time.
- Historical Performance: Review the fund’s historical performance during different market conditions to gauge its ability to adapt and generate consistent returns.
Who Should Invest in Dynamic Asset Allocation Funds?
These funds adjust their exposure to each asset class based on market conditions and the performance of certain securities. Therefore, investors who want a portfolio that can adjust to changing market conditions and give optimal returns may consider investing in Dynamic Asset allocation Funds. Here are some types of investors who may consider investing in Dynamic Asset Allocation Funds:
- Risk-averse investors: Dynamic Asset Allocation Funds are suitable for investors who are risk-averse and want to invest in a diversified portfolio with a mix of low-risk and high-risk assets.
- Investors with a moderate risk profile: Investors with a moderate risk profile who want to earn higher returns than what traditional fixed-income investments offer, while managing risk, may consider investing in Dynamic Asset Allocation Funds.
- Long-term investors: Dynamic Asset Allocation Funds can suit investors with a long-term investment horizon who want to earn higher returns by investing in a diversified portfolio of assets across different asset classes.
- Investors who want to be flexible in terms of market opportunities: These funds are suitable for investors who want to take advantage of market opportunities and invest in different asset classes based on the prevailing market conditions.
However, it is important to note that investors should carefully consider their risk tolerance before investing.
Taxability of Dynamic Asset Allocation Funds
In terms of taxability, Dynamic Asset Allocation funds are treated similarly to other equity-oriented mutual funds.
Dynamic mutual funds are categorised as equity funds if the stock holdings are at least 65%. They are subject to a long-term capital gains tax of 10% (plus applicable surcharge and cess) if held for more than 1 year. Moreover, long term capital gains of less than ₹1 lakh will not be taxed. Short-term capital gains (investments held for less than 1 year) will be taxed at 15% (plus applicable surcharge and cess).
When an investor earns dividends on their DAAF investments, the dividends are included in their taxable income and subject to taxation based on their income tax bracket. In addition, if the dividend amount exceeds ₹5,000 in a financial year, a 10% Tax Deducted at Source (TDS) is applied to the excess amount.
It is important to note that the tax rules are subject to change, and investors should consult with a tax advisor for specific guidance on tax implications related to their investments.
How to Invest in Dynamic Asset Allocation Funds?
Investing in Dynamic Asset Allocation Funds can be a straightforward process using your Angel One account. Here’s a guide on how to do it:
Step 1: Access Your Angel One Account. Start by logging into your Angel One account using your registered mobile number. Validate the OTP received and enter your MPIN.
Note: If you don’t already have a Demat account with Angel One, you can easily open one by completing the KYC procedure and providing the required documents.
Step 2: Choose the right fund now; it’s time to pick the most suitable mutual fund based on your financial goals and risk tolerance. You can find various funds in the mutual fund section on the Angel One app. Here are some considerations during this stage:
- Search for the specific fund you want to invest in or explore funds recommended by Angel One across different categories.
- Analyse the fund’s historical performance, tax implications, sectors it invests in, and the stocks it holds.
- Calculate potential returns using the provided calculator.
- Assess the fund’s risk level and compare it with your own risk tolerance.
- Check the fund’s ratings from well-known rating agencies, which typically range from 1 to 5.
- Consider the fund’s expense ratio to understand the cost associated with your investment.
Step 3: Initiate Your Investment Once you’ve finalised the fund(s) you wish to invest in, access your Angel One account, navigate to the Mutual Funds section, and locate the chosen fund. Since this could be a long-term investment, it’s essential to be cautious during this step. Here’s what to do:
- Decide whether you want to invest a lump sum amount or set up a monthly SIP (Systematic Investment Plan).
- Enter the investment amount and select your preferred payment method. UPI is the recommended mode, but you can also opt for net banking.
- If you’re choosing the SIP route, you can set up a mandate for hassle-free future contributions.
Top 5 Dynamic Asset Allocation Funds to Invest in
The following are the top Dynamic Asset Allocation or Balanced Advantage Funds in India:
| Name of the Fund | AUM (₹ Cr) | CAGR 5Y | Expense Ratio | Sharpe Ratio | CAGR 3Y |
| HDFC Balanced Advantage Fund | 95521.37 | 19.81 | 0.75 | 0.49 | 20.20 |
| Baroda BNP Paribas Balanced Advantage Fund | 4220.83 | 16.11 | 0.77 | 0.51 | 13.30 |
| Edelweiss Balanced Advantage Fund | 12428.49 | 15.08 | 0.52 | 0.52 | 11.77 |
| Tata Balanced Adv Fund | 10217.18 | 13.99 | 0.42 | 0.51 | 11.98 |
| Aditya Birla SL Balanced Advantage Fund | 7305.25 | 13.14 | 0.72 | 0.87 | 12.33 |
The above-mentioned top mid-cap funds are for informational purposes only and are not recommendations. The funds are ranked based on 5-year CAGR as of January 2025.
HDFC Balanced Advantage Fund
The HDFC Balanced Advantage Fund ranks 1st based on its 5-year CAGR of 19.81%. It has the highest AUM among the 5 funds, at ₹95,521.37 crore, and an expense ratio of 0.75%.
The fund’s Sharpe ratio is 0.49, which is the 2nd lowest in the list. Over the past 3 years, it has delivered a CAGR of 20.20%, the highest among the 5 funds.
Baroda BNP Paribas Balanced Advantage Fund
The Baroda BNP Paribas Balanced Advantage Fund ranks 2nd with a 5-year CAGR of 16.11%. It has an AUM of ₹4,220.83 crore and an expense ratio of 0.77%, which is the highest in the list.
The fund’s Sharpe ratio of 0.51 ranks 3rd in the list. Over the past 3 years, it has delivered a CAGR of 13.30%, ranking 3rd in 3-year performance.
Edelweiss Balanced Advantage Fund
The Edelweiss Balanced Advantage Fund ranks 3rd with a 5-year CAGR of 15.08%. It has an AUM of ₹12,428.49 crore and an expense ratio of 0.52%, which is the 2nd lowest in the list.
The fund’s Sharpe ratio of 0.52 is the highest on the list. Over the past 3 years, it has delivered a CAGR of 11.77%, ranking 5th in 3-year performance.
Tata Balanced Advantage Fund
The Tata Balanced Advantage Fund ranks 4th with a 5-year CAGR of 13.99%. It has an AUM of ₹10,217.18 crore and an expense ratio of 0.42%, which is the lowest among the 5 funds.
The fund’s Sharpe ratio of 0.51 ranks 3rd. Over the past 3 years, it has delivered a CAGR of 11.98%, ranking 4th in 3-year performance.
Aditya Birla SL Balanced Advantage Fund
The Aditya Birla SL Balanced Advantage Fund ranks 5th with a 5-year CAGR of 13.14%. It has an AUM of ₹7,305.25 crore and an expense ratio of 0.72%, which is the 2nd highest in the list.
The fund’s Sharpe ratio of 0.87 is the highest on the list. Over the past 3 years, it has delivered a CAGR of 12.33%, ranking 2nd in 3-year performance.
Mutual Funds Calculators
Dynamic Asset Allocation or Balanced Advantage Funds FAQs
What are Dynamic Asset Allocation Funds in India?
How do Dynamic Asset Allocation Funds work?
What is the ideal investment horizon for Dynamic Asset Allocation Funds?
What are the advantages of investing in Dynamic Asset Allocation Funds?
What are the risks of investing in Dynamic Asset Allocation Funds?
What are some popular Dynamic Asset Allocation Funds in India?
