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Dynamic Hybrid Funds: A Rising Star in Mutual Fund Investments

In the ever-evolving landscape of mutual fund investments, dynamic hybrid funds have emerged as a beacon of stability and growth for investors. Particularly, within this category, balanced advantage funds (BAFs) and multi-asset funds (MAFs) have garnered significant attention due to their adaptive asset allocation strategies and risk-mitigating features. As market uncertainties heightened during the pandemic-induced downturn of 2020, these funds proved their mettle, providing investors with a sense of security amidst volatility.

Understanding Balanced Advantage Funds and Multi-Asset Funds

Balanced advantage funds (BAFs) and multi-asset funds (MAFs) operate on dynamic asset allocation principles. BAFs typically invest in a blend of equities, arbitrage opportunities, and debt instruments, offering the taxation benefits associated with equities. Similarly, MAFs extend their investment spectrum to include commodities, predominantly gold in most cases, along with equities, arbitrage opportunities, and debt instruments.

These funds are particularly attractive to conservative investors or those with a moderate risk appetite, offering a diversified portfolio that navigates various market conditions.

Exponential Growth in Assets Under Management (AUM)

The allure of dynamic hybrid funds is evident in the exponential growth of assets under management (AUM) witnessed over the past few years. As of March 31, 2024, balanced advantage funds command an AUM of Rs. 2.49 lakh crores, while multi-asset funds hold Rs. 67,000 crores. This marks a remarkable increase compared to just four years ago when BAFs and MAFs held a fraction of these figures.

AMCs’ Unique Offerings and Strategies

Every Asset Management Company (AMC) has endeavored to capitalize on the burgeoning interest in dynamic hybrid funds by launching schemes tailored to attract investors. Despite sharing similar names, BAFs and MAFs offered by different AMCs exhibit stark contrasts in their allocation methodologies and investment strategies.

For instance, while some BAFs use Price to Book (P/B) ratios to determine equity allocation, others rely on Price to Earnings (P/E) ratios or a combination of both. Similarly, MAFs vary in their equity exposure, leading to differences in tax implications for investors.

Addressing Investor Confusion

The plethora of options within dynamic hybrid funds can often lead to confusion among investors, especially those who are new to mutual fund investments or prefer a conservative approach. To mitigate this confusion, it’s essential for investors to gain clarity on the structure, taxation, and investment strategies of each fund.

Transparent communication from AMCs, including sub-categorization within these funds or clear indications of taxation and equity allocation structures, can empower investors to make informed decisions aligned with their financial goals.

Dynamic hybrid funds, including balanced advantage funds and multi-asset funds, offer investors a versatile and resilient investment avenue in today’s volatile markets. However, to fully leverage the potential of these funds, investors must educate themselves on the nuances of each scheme and seek expert guidance when necessary. By fostering clarity and transparency, both AMCs and investors can navigate the dynamic landscape of mutual fund investments with confidence and conviction.


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