Five Best Performing Dynamic Asset Allocation Funds

Last Updated : June 22, 2020, 5:49 p.m.

Many investors who invest in equity markets like to time the market by entering at a price that they consider low and then moving their portfolio to debt when markets are high. However, if done without any scientific or mathematical calculation, it can lead to suboptimal results. Timing the markets to precision is very difficult, if not impossible. You can be successful at it sometimes, but the majority of the time it is a futile exercise. What if there is a fund that can do this for you. Well, dynamic asset allocation funds are structured to do exactly this. Let us know about these funds.

Top Mutual Funds to Invest in Now

What is a Dynamic Asset Allocation Fund?

Dynamic asset allocation funds are a type of hybrid funds that invest in a mix of equity, debt and arbitrage. As the name suggests, the portfolio is dynamically managed and rebalanced based on different criteria such as PE (Price to earnings) or PB (price to Book). These funds have an inbuilt model where allocation changes between equity, arbitrage and debt. To understand better, let us look at an example, there is a dynamic asset allocation fund which follows a strategy that when PE of the stock index( Nifty or Sensex) is between 18-20 then it will allocate 50% to equity and when it is between 15-17 it will allocate 75% in equity, the remaining will be in debt. So, if the PE of the market today is 24 and the portfolio is only 20% in equity and 80% in debt and a week later the PE became 20 then this portfolio will rebalance to 50% in equity and 50% in debt.

What are the Advantages of Dynamic Asset Allocation Funds?

The objective of these funds is to be on the right side of the markets and keep rebalancing to deliver optimum returns. If equity markets become cheap, these funds allocate a maximum portfolio to equity, and if equity markets become expensive, these funds shift from equity to arbitrage and debt. Typically, the portfolio of these funds has a 30-80% allocation to equity at different times basis the market behaviour. From a taxation point of view, these funds try to keep 65% in equity (including arbitrage) to qualify for equity taxation which is lower than debt. If these funds are managed well then they protect the portfolio during a downturn by shifting a large part to debt from equity.

Who Should Invest in Dynamic Asset Allocation Funds?

These funds are ideal for first-time investors who are risk-averse and do not want to invest in a pure equity fund but want some participation in stock markets. They are a good bet for risk-averse investors in general and also for people who like to time the markets but are unable to do so.

Best Performing Dynamic Asset Allocation Funds

DSP Dynamic Asset Allocation Fund

This fund is offered by DSP Mutual Fund , let us look at the key points or features of this fund:

• This fund was launched on 6th Feb 2014 and manages an AUM of INR 1,238 crores.
• It has delivered 7.53% annualized returns since inception and is benchmarked against the CRISIL Hybrid Aggressive Index.
• The current portfolio has 68.3% in equity, 27.1% in debt and 4.6% in cash. This portfolio allocation shows that the model has rebalanced the portfolio more towards equity in the falling equity markets.
• The equity part has 30 stocks and about 27% in AAA-rated bonds.
• The fund is rated five stars by Value Research.

Edelweiss Balanced Advantage Fund

This fund is offered by Edelweiss Mutual Fund, let us look at the key points or features of this fund:

• This fund was launched on 20th Aug 2009 and manages an AUM of INR 1,238 crores.
• It has delivered 8.68% annualized returns since inception and is benchmarked against the CRISIL Hybrid Moderate Index.
• The current portfolio has 50.2% in equity, 31.8% in debt and 18% in cash. This portfolio allocation shows that the model is evenly balanced between equity and debt currently.
• The equity part has 61 stocks and the debt portfolio has about 35% in AAA and cash.
• The fund is rated four stars by Value Research.

ICICI Prudential Balanced Advantage Fund

This fund is offered by ICICI Prudential Mutual Fund , which is one of the largest mutual funds in the country. Let us look at the key points or features of this fund:

• This fund was launched on 30th Dec 2006 and manages an AUM of INR 24,582 crores, which makes it the largest fund in this category.
• It has delivered 9.78% annualized returns since inception and is benchmarked against the CRISIL Hybrid Moderate Index.
• The current portfolio has 71.3% in equity 26.9% in debt and 1.8% in cash. This portfolio allocation shows that the model is skewed towards equity.
• The equity part has 105 stocks and the debt portfolio has about 20% in AA which is the highest allocation within debt.
• The fund is rated four stars by Value Research.

L&T Balanced Advantage Fund

This fund is offered by L&T Mutual Fund. Let us look at the key points or features of this fund:

• This fund was launched on 7th Feb 2011 and manages an AUM of INR 631 crores.
• It has delivered 10.29% annualized returns since inception and is benchmarked against the CRISIL Short Term Bond & S&P BSE 200.
• The current portfolio has 75.3% in equity, 20.5% in debt and 4.2% in cash. This portfolio allocation shows that the model is heavily skewed towards equity.
• The equity part has 36 stocks and the debt portfolio has about 20% in AAA, which is the highest allocation within debt.
• The fund is rated four stars by Value Research.

Motilal Oswal Dynamic Fund

This fund is offered by Motilal Oswal Mutual Fund . Let us look at the key points or features of this fund:

• This fund was launched on 27th Feb 2016 and manages an AUM of INR 1,062 crores.
• It has delivered 6.29% annualized returns since inception and is benchmarked against the CRISIL Hybrid Moderate index.
• The current portfolio has 82.9% in equity, 7.8% in debt and 9.2% in cash. This portfolio allocation shows that the model is heavily skewed towards equity.
• The equity part has 22 stocks and the debt portfolio has about 10% in cash, which is the highest allocation within debt.
• The fund is rated four stars by Value Research.

Conclusion

Dynamic asset allocation funds are best suited for risk-averse investors who are looking for allocation to all asset classes that are dynamically managed. These are a good entry point for first-time investors who do not want to take risk of investing in equity markets. These funds are also ideal for investors afraid of volatility in equity funds. We would recommend splitting your investments in two of these funds-our top choices are Edelweiss and ICICI Prudential. You can invest in more than two if you are looking for a higher number of funds in your portfolio.