Dynamic hybrid funds, encompassing balanced advantage and multi asset funds, have surged in popularity over the past half-decade. Attracting conservative investors seeking a blend of stability and growth. Amidst this surge, each Asset Management Company (AMC) offers unique structures and strategies, resulting in varied net equity exposure and returns.
Understanding Balanced Advantage and Multi Asset Funds
Balanced advantage funds (BAFs) dynamically allocate investments across equities, arbitrage opportunities, and debt instruments. Leveraging the benefits of each while enjoying equity taxation advantages. Similarly, multi asset funds (MAFs) expand this strategy to include commodities, predominantly gold in most cases, alongside equities, arbitrage, and debt instruments.
The Remarkable Growth in AUM
The exponential growth in Assets Under Management (AUM) for dynamic asset allocation funds is staggering. In just four years, from March 2020 to March 2024, BAFs witnessed over a threefold increase in AUM. While MAFs surged over sixfold. This meteoric rise underscores investors’ growing confidence in these schemes.
AMCs’ Pursuit of Opportunity
Capitalizing on this burgeoning category, every AMC ventured to seize a share of the market by launching funds within these categories, each with its unique structure and features. Despite sharing similar names, stark differences exist among these funds, from asset allocation methodologies to investment strategies.
Contrasting Risk and Returns within Balanced Advantage Funds
The nature of BAFs varies significantly across different AMCs, reflected in their net equity exposure and subsequent returns. While some AMCs base equity allocation on Price to Book (P/B) ratios. Others consider Price to Earnings (P/E) ratios or a combination thereof. This diversity results in contrasting risk profiles and returns among BAFs.
Diverse Approaches within Multi Asset Funds
Similar to BAFs, MAFs within different AMCs exhibit notable differences, particularly in equity allocation methodologies and tax implications. Depending on equity exposure, the taxation of long-term capital gains varies, ranging from marginal tax slab rates to fixed percentages with or without indexation benefits.
Addressing Investor Confusion
Given the complexity and diversity within these categories, clarity is essential to guide investors effectively. Sub-categorization or clear indications of taxation and equity allocation structures alongside scheme names can help investors make informed decisions aligned with their objectives. Especially for first-time or conservative investors, this clarity is paramount to avoid unexpected outcomes and ensure investment objectives are met.
Dynamic hybrid funds offer a compelling blend of stability and growth potential, attracting a wide spectrum of investors. However, the diversity within these categories necessitates careful consideration and expert guidance to navigate effectively. By understanding the nuances of each fund and seeking clarity, investors can harness the full potential of dynamic hybrid funds for their investment journey. Read more https://www.livemint.com/
Disclaimer
Investing in mutual funds carries inherent risks, and investors are advised to conduct thorough research or seek professional advice before making investment decisions.
By adhering to the criteria and providing comprehensive information, this blog aims to shed light on the complexities of dynamic hybrid funds. Empowering investors to make informed choices tailored to their financial goals and risk preferences. Follow for more Nifty MidSmall Healthcare Index
