DYNAMIC ASSET ALLOCATION FUND

I have come across a lot of Articles about the Dynamic Asset Allocation-based Mutual Fund. A professional fund manager will change the asset allocation between Equity and Debt regularly based on market conditions. Like when Equity is overvalued, he will increase the Debt and reduce Equity and vice versa. Thus an investor will avoid the loss of overvalued equity and get the benefit of undervalued equity. These funds focus on timing or predicting the market movement. But correctly predicting short-term market movement is unrealistic.

The main concept of Asset Allocation is to create a discipline in investing by removing emotional barriers of greed and fear. Asset allocation tries to generate the maximum return for investors by investing in the right asset classes for the long term. Its idealogy is "Time in the market (the duration you stay invested) is far more important than timing the market (you entry or exit points)".

When you do Dynamic allocation, you inherently make a few bad moves due to fear or greed and return decreases. Thus, historic return (5 Year basis), all the Dynamic fund has underperformed the market (NIFTY 50). As the duration increases like 10 years or 15 years, the underperformance will increase