Dynamic funds are a veritable blessing for those who wish for high growth prospects without having to involve themselves in switching between equity and debt funds by themselves.
As an investor wishing to explore as many high growth options as possible, are you aware of a nifty little option known as the dynamic mutual fund? It is an option that allows you to switch between different fund asset classes to get the dual benefit of high growth and low risk.
What are dynamic funds and how do they work?
Dynamic mutual funds’ rely on dynamic asset allocation, hence the name. Dynamic asset allocation is a strategy wherein the asset switches seamlessly between the two main types of securities: equity and debt.
The switch is affected to mitigate the underlying risk and generate growth over a longer time frame. Thus, the switch over in dynamic mutual funds is done seamlessly between equity and debt to offer high growth at lowered risk – the switch is done towards and backwards based on market undercurrents, the investor’s risk appetite and investment goals, etc. This is done also to capitalise on the dual benefits of equity and debt without exposure to the liabilities of both.
Thus, the dynamic fund is an investment product like other market options. You can have different kinds of dynamic mutual funds, from dynamic debt funds, with higher or lower exposure to dynamic equity funds.
Why invest in them?
* Dual benefits in one fund: The fund switches between asset classes easily, ensuring better gains over the long run as compared to other funds.
* Tax benefits: About 65% of the fund is invested in equities, so you get equity-related tax-free returns for holding the fund for more than a year. Meanwhile, dividends on the fund are also tax free for debt funds with exposure less than 65%.
If you wish for higher growth, choose dynamic equity mutual funds!
Now that you have a rudimentary understanding of what dynamic mutual funds are, we can explore dynamic equity mutual funds in some details thus –
* They are funds that generate high growth prospects by parking your money in equity linked securities and money market options.
* However, though the growth may be higher in comparison with dynamic debt funds, for example, the risk is also correspondingly higher and the fund house cannot guarantee a predictable growth rate. Thus, you cannot bank on it totally for an important milestone to be fulfilled, especially in case of high rate fluctuations.
* But studying the dynamic equity fund’s NAV can help you make the right decision about buying into it or not. Meanwhile, you can check its growth rate since inception – these figures will be recorded on the fund house’s portal or smartphone app.
* True growth with lowered risk can only be ensured with long term investment in dynamic equity funds.