A mutual funds investment is one of the best ways to multiply your wealth. However, there are many types of mutual fund options to choose from. To make the best of your mutual funds investment, it is advisable to have a portfolio that is a mix of debt funds, equity funds, hedge funds etc. The problem, however, arises when you want to change the composition of your fund based on the market scenario. Standard mutual funds do not have provisions for tweaking the composition – shifting from equities to debt and vice versa.
Dynamic funds, on the other hand, allow you to change between various asset classes like debt, equity, cash etc. according to market performance. Therefore, through a dynamic fund, you can always reap the benefits the market has to offer. If this reason alone is not enough to convince you to invest in dynamic funds, here is a list.
Protection from Market Volatility
A dynamic fund automatically switches to the best performing asset class depending on the market conditions. This makes them less prone to its fluctuations and as a result, way less risky.
You Do Not Need To Be A Pro
Most people know it is best to invest in equities when the market is down and reap profits when the scenario improves. Yet it requires constant surveillance of the market and some degree of expertise to accurately predict market trends. However, with a dynamic fund, you can relax as your assets are reallocated to suit the market. All you need is a basic knowledge of how the market works.
Entry and Exit
Since asset reallocation is done by a formula and not by a fund manager, dynamic funds are super flexible when it comes to avoiding market crashes.
Lower Risk and Higher Return
The mutual fund mantra has always been higher risks reap high returns. However, a dynamic fund is the exact opposite. Despite being one of the least volatile investments, it assures high returns without the risk. Dynamic asset allocation controls your equity exposure to the market and ensures high returns.
Save on Taxes
Dynamic Funds, on an average, constitute of 65% equity. This allows it to fall under the same taxation category as equity funds. Therefore, with a long-term dynamic fund, you can get tax benefits associated with long-term capital gains.
If you have a basic understanding of the market but do not have the time or inclination to constantly keep track, a dynamic fund is your go-to option. You no longer need to time the market or take hefty risks in hopes of higher returns. Your dynamic fund portfolio will automatically balance itself to reap the best returns the market can possibly offer.
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