Dynamic Asset Allocation Funds – For When You Need To Sit On Your Hands
November 7, 2016 1 Comment
I’ve had my financial habits called “inertia”. So for most of the time I must be doing somethings right. There is nothing like hyperactivity and thrill-seeking to destroy your wealth or the capacity for wealth.
When it comes to paper assets, the best time is to buy stocks is when the market falls drastically, that’s when you pour your savings into quality stocks to hold for just about ever. The time to buy debt instruments to hold to maturity is when interest rates are at the highest band of the spectrum. And the time to contract long-term fixed loans is when the interest rates hit rock bottom.
Beyond these situations, its hard to do something obvious, dumb and pretty easy to give yourself a good leg up. You then get the onerous task of deploying your cash in ways to not lose too much. At such times you could consider mutual fund schemes such as the non-glamorous ICICI Prudential Balanced Advantage Fund . This is a Dynamic Asset Allocation Fund, that’s akin to the older Balanced Funds that invest in both equity and debt instruments, the chief difference being in the fact that the proportion of debt and equity investments of the fund is not fixed. And thankfully this is not a fund that invests in paper gold.
The fund has been round from 30Dec,2006.In that time its returned a CAGR of over 11%,not bad as hybrid funds go. And in certain low interest rates scenarios, definitely interesting.As the fund has a low beta of 0.8 , you’re sure that minor market corrections won’t negatively affect your fund value too much. So, you can use this fund to hold your cash till good opportunities present themselves. In times of market crash, this fund won’t stay up. At best its low beta will mean your holdings in this fund will lose less value than the general market average. But then your purpose is to hold this fund only in the long waits between market crashes. What would be your triggers to exit and stand clear? News of the stock markets reaching new heights or better yet, the interest rates starting to go up after going deep south for a while.
This fund has an exit load of 1% you have to keep in mind, should you judge that you might not keep your holding for over 18 months.
This fund is treated as an equity mutual fund and so deploying cash here is more tax advantaged than parking the money in a savings bank account or a short term FDs.