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Dynamic Asset Allocation Funds

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Dynamic Asset Allocation funds are a special type of mutual fund schemes.

Because they have an exposure to both debt and equity securities at all types, technically they are called hybrid schemes.

In this type of schemes, the fund manager will decide how much percentage of allocation of the scheme money should be put in equities and how much should be in debt schemes.

Typically there will be two fund managers to manage the equity and debt portion separately.

There are several factors that are used to decide the portion of allocation for both equity and debt part.

For example, a PE allocation strategy is used to determine the equity portion as seen in Tata and Franklin Templeton schemes.

As Nifty PE goes up, the equity exposure is reduced and debt exposure is increased.

Other schemes have other computational methods but at the end of the day, all of them do the same - manage equity and debt allocations according to market opportunities.

They often run in auto-pilot mode with rules driving the investment.

Taxation of Dynamic Asset Allocation funds

In regard to taxation, there is no clear disclosure about this.

So, investor need to decide at the time of redemption as to how much is the equity portion of the scheme and then file his tax returns accordingly.

Technically, a mutual fund scheme needs at least 60% allocation in equity securities to be eligible as an equity scheme.

Other factors

These schemes are all-season funds which means investors can SIP or keep investing irrespective of market conditions.

These schemes generally have high churning of underlying securities and hence might have higher expense ratios (compared to other type of hybrid schemes).

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