Dynamic asset allocation fund, an efficient way to tackle volatility

Every mutual fund investor wants to move forward wisely in the current market situation. Each and every investor is trying to minimise their risk exposure and maximise and safeguard returns. For this investors are looking at various options available currently in the mutual fund industry.

One can look at dynamic asset allocation funds as an option to tackle volatility. The name itself suggests the nature of this type of mutual fund. These funds are dynamic in nature and adjust their asset allocation smoothly as per the market movement. If the markets are at highs, the fund reduces equity exposure by booking profit and increases its debt investment and vice versa. Due to this, the returns from these funds remain a bit lower in a bull market, but after the bull run is over these funds are poised to reap good returns for the investors.

Investments in these funds are based on well-researched models of market behaviour. These funds and their investment managers try to achieve time-tested formula of buying equities on dips and booking profits at highs. So the primary objective for these funds remains earning superior returns over a period of time by keeping volatility low.

These funds are taxed as per the asset allocation, that is if the portion of the debt is higher, then the fund is taxed as a debt fund and if the equity portion forms a major corpus, then it is taxed as an equity fund.

In the current market situation, where volatility is at its peak these funds form a good investment option for the investors. As investors can also benefit from the rising interest rate environment and post the market revival, they can witness growth in the equity investment too. These investments should be made for a moderate time horizon and with a moderate exposure in the current environment to tackle the market volatility.