Equities market both in India and abroad get direction from both local and global news. Over the last few weeks, investors' sentiment got a hit due to escalating US-China trade war tensions, rising US yield and this coupled by a host of factors such as soaring crude oil prices, depreciating local unit, upcoming key state elections and political uncertainty just ahead of the assembly elections early next year, investment experts view 2018 to be highly volatile. And to beat this volatility, it is advised to put bet on dynamic or more specifically balanced advantage funds.
Reasons to invest in Dynamic or Balanced Advantage Funds
Asset allocation strategy: In a usual case, the portion allocated to equities ranges between 30-80% but when fund managers view valuations to be cheap, the exposure in equities can be taken to as much as 100%. So, primarily, before putting bet on different assets including debt and equity, market valuations are considered. This said we mean, manager cut back on equities as they scale up in valuations and vice-versa. Metrics such as price to earnings and price to book value are looked upon before the asset allocation plan.
When the markets tread higher, PE and PB ratio are constantly increasing and it is at this time that Balanced Advantage funds book profits from equity and take a dig in debt.
So, investors by taking positions in such fund category, stand to have the profitable as well as defensive portfolio.
It is to be noted that when equity exposure is reduced, the fund makes it a point to keep the equity plus arbitrage component at 65% of the total fund corpus to be eligible for equity taxation.
Dynamic or Balanced Advantage Funds: Suitable for whom?
The fund can be lapped up both risk-averse as well as those investors looking to park some lump sum amount due to their inherent asset allocation strategy. Also, any emotion based investing or selling can be contained by roping in dynamic asset allocation funds as generally investors at the time of correction usually tend to sell off.