Dynamic Asset Allocation Funds – A Hybrid Fund

In 2017, the Securities and Exchange Board of India (SEBI) asked mutual fund houses to re-categorise their mutual fund schemes so that there is uniformity across MF houses and there will be simplification for investors.

The schemes are to be classified under five categories:

·       Equity Schemes

·       Debt Schemes

·       Hybrid Schemes

·       Solution-Oriented Schemes

·       Other Schemes

As you can see, 'Balanced Funds' do not exist anymore. They have been replaced as 'Hybrid Schemes'. Earlier many schemes with different investment rationale and objectives used to get classified as 'Balanced Funds'. This left investors confused. Now there are 6 types of hybrid funds that will cover different types of schemes that were earlier classified as 'Balanced Funds'. Let us look at them -

Type of Hybrid Fund	Investment Pattern
Conservative Hybrid Fund	10% to 25% in equity & equity related instruments 75% to 90% in Debt   instruments
Balanced Hybrid Fund and Aggressive Hybrid Fund	Balanced - 40%-60% in equity & equity related instruments 40%-60% in Debt   instruments Aggressive - 65%-80% in equity & equity related instruments 20%-30% in Debt   instruments
Dynamic Asset Allocation or Balanced Advantage	Investments  in  equity/  debt is managed dynamically
Multi Asset Allocation	Investments in at least three   asset classes  with  a  minimum  allocation of  at least  10%  in each
Arbitrage Fund	Minimum of 65% allocation in equity & equity related instruments
Equity Savings	Minimum of 65% allocation in equity & equity related instruments Minimum of 10% allocation in debt instruments

Let us look at the features of Dynamic Asset Allocation Funds -

·       They have no restriction on the investment structure. The investment allocation to equity and debt can be managed dynamically by the fund managers based on market conditions.

·       When the market is on its high, exposure to equity can be reduced. When markets look attractive to buy, the allocation for equity can be increased. When interest rates are in a downward cycle, the MF scheme manager can choose to invest in shorter duration debt instruments which are less volatile to interest rate changes. Thus these funds can bring a balance in your portfolio

·       These funds are good to bring stability in your overall portfolio. If you want to invest in equity but do not want to risk your money in the direct equity market, you can opt to invest in a dynamic asset allocation fund.

Some of the Dynamic Asset Allocation Funds available in the market are AXIS Dynamic Equity fund, IDFC Dynamic Equity, Reliance Balanced Advantage, SBI Dynamic Asset Allocation etc.