In volatile markets, these mutual funds can bail you out

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Amid steady rise in COVID 19 cases, weak macroeconomic cues and a jab of hope from the vaccination drive – stock markets have been volatile in the last few trading sessions.

While the crash of 1,708 points that the Sensex witnessed on April 12 nowhere close to the slump between February and March 2020 when it fell from 42,000 levels to 27,000 levels, investors often exit equity investments, including mutual funds, out of fear of further losses.

How investors can tide over this mid-term volatility and create long-term wealth? Some experts believe the answer lies in Dynamic Asset Allocation Funds.

Dynamic Asset Allocation Funds are a type of balanced mutual funds or hybrid mutual funds.

These funds are actively managed by professional fund managers who constantly keep rebalancing the portfolio by changing the mix of equity, debt, and other asset classes.

In short, these funds buy more equity when markets fall and sell when markets rise in a bid to offer a better alpha to investors.

Here’s a list of the top 10 balanced advantaged funds as per Value Research:

“We firmly believe that dynamic asset allocation funds on the balance advantage fund category is a beautiful fit for investors for the long run, because whenever markets fall, they buy. Whenever markets rise, based on valuation, they sell a bit. This rebalancing philosophy ultimately helps investors reach their goal,” said Chintan Haria, head of product development and strategy at ICIC Prudential AMC.

Haria added that many investors did not capitalise on the crash of March 2020 when they could have made better returns by staying with a balanced fund. “How many of us were actually able to invest in March 2020? We all froze. So those invested in the dynamic asset allocation funds saw their investment come in handy. I think for better part of investors, if you’re worried about investing in a day like yesterday (12^th April 2021), you do tend to get frozen. Invest in dynamic asset allocation funds like balanced advantage fund category and I think they should do the job for you in the long run.”

According to Swarup Mohanty, CEO of Mirae Asset Mutual Fund, the key to long term wealth generation is in staying invested in asset classes over a period of time and periodically reviewing the asset allocation with necessary rebalancing.

“Each person has his or her own asset allocation. A dynamic asset allocation fund does not cater to an individual’s asset allocation is something that should always be kept in mind,” he said. According to Mohanty, being a Dynamic Investor rather than investing in dynamic asset allocation funds would serve better as that would be aimed at one’s own asset allocation.