Dynamic asset allocation schemes (DAAF) are a type of hybrid mutual fund that, as the name suggests, invests in both equity as well as debt instruments. This strategic allocation helps to minimize risk, given its dynamic nature that adapts to all stock market conditions by increasing or decreasing the allocation to debt or equity as required. For instance, when valuations are high, the equity component is reduced, as compared to when valuations are low and equity is increased. A fund house is at the liberty to invest from 0% to 100% in equity, as it deems fit. The fund managers here carefully monitor the investments and adjust the equity or debt exposure based on market research and analysis to keep in line with the scheme’s investment objective.
DAAF as a mutual fund product is suitable both for the first time investor as well as the more seasoned investor owing to the hybrid nature of the fund. There is also no need to time the markets; you could choose this these schemes when you’re looking to invest over the long term, i.e. with a 7 year+ horizon. As with any other mutual fund investment, do assess your financial goals, risk appetite as well as time horizon before you go ahead with investing. The diversified investment style of open ended dynamic asset allocation funds attempt to maintain fair equity allocation levels while also allocating a portion of the assets in fixed income securities based on market valuations and aims to benefit from volatility by reducing the overall cyclicality of the portfolio with an aim for potential capital appreciation.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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