What are Dynamic Asset Allocation Funds
Dynamic Asset Allocation Funds, or Balanced Advantage Funds (BAF) are one of the categories of Hybrid Mutual Fund schemes. As per the SEBI rules, these funds invest in asset classes like equity and debt and keep on modifying the allocation of the assets, by switching between the two asset classes as per the market conditions.
For example, the fund manager in BAF can go for 70-80% equity, or else can choose for 70-80% debt assets and can change these asset allocations as per the prevailing market conditions.
These can be termed as one of the best investments in an uncertain market. When compared to static allocation funds, BAF is a better option as the overall investments are spread out to provide more returns.
Advantages of Dynamic Asset Allocation Funds
Some of the advantages of Dynamic Asset Allocation Funds are:
- Investments across various asset classes help manage a portfolio with a diversified risk factor.
- The strategy of BAF ensures to make up by the performing asset class for the returns of underperforming assets.
- As the investments are spread, the taxation structure is quite relaxed.
- These funds offer better realization than most comparable mutual funds, especially when the investments are held for a long period.
Taxability on Dynamic Asset Allocation Funds
One of the advantages of investing in Balanced Allocation Funds is the tax structure it offers.
The BAF that maintains 65% in equities is classified as Equity Funds. These are taxed at the rate of 10% for long-term capital gains (LTCG), held for more than 1 year, on profits made above Rs. 1 Lakh each year. For STCG, held for less than 1 year, these are taxed at the rate of 15%.
The BAF which maintains 65% in debt is classified as a Debt Fund. These are taxed at 20% with indexation benefits if held for the long-term, which is more than 3 years. If they are held for less than 3 years then short-term capital gains tax will be levied as per the tax slab of the investor.
Things to Consider Before Investing in Dynamic Asset Allocation Funds
Some of the important factors to consider before investing in Dynamic Asset Allocation Funds are:
- Consider investing only when you have a time horizon of at least three years or more.
- Good for investing if you want to diversify your portfolio.
- BAF can earn risk-adjusted returns with long-term financial goals.
- Investors can consider investing in these funds through SIPs.
How to Invest in Dynamic Asset Allocation Funds with Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
Frequently Asked Questions (FAQs)
1. What are Dynamic Asset Allocation Funds?
Dynamic Asset Allocation Funds or Balanced Advantage Fund meaning: Those types of Mutual Funds where the funds manager changes your asset allocation to increase to stocks or debt, depending on what is in favor at the given market condition.
2. How do Dynamic Asset Allocation Funds Work?
Dynamic Asset Allocation Funds invest in a mix of stocks and keep changing the allocation of assets based on the volatility of the markets. The change in asset allocations helps provide optimal returns to the investors.
3. How Long Should I Stay Invested in Dynamic Asset Allocation Mutual Funds?
To minimize tax liability and simultaneously enjoy better returns, investments in Dynamic Asset Allocation Mutual Funds should be considered holding for at least three years.
4. What is the Exit Load on Dynamic Asset Allocation Funds?
Dynamic Asset Allocation Funds are open-ended funds and can be redeemed as per the investor’s choice. However, if they are redeemed within one year from the date of investment, then an exit load of 1% is required to be paid.
5. Can we Redeem Dynamic Asset Allocation Funds Anytime?
Dynamic Asset Allocation Funds are generally open-ended fund schemes and can be redeemed as per the requirement of the investors. However, some of these schemes may require a small exit load when redeemed within one year from the date of investment.
