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All about Dynamic Equity Funds

Despite the risks, equity market investments are witnessing a steady rise. This is largely due to the fact that equity investments give out higher returns. If you are planning to invest in equity, you would have surely come across the term ‘Dynamic Equity Funds’ during your research. They are a relatively new equity scheme which was introduced by fund houses, hence many are not aware of its features. So, let’s start with the basics.
What are dynamic equity funds? 

As the name suggests, dynamic equity funds balance their equity portfolios dynamically by making a higher stock investment when the markets are down and less when they are up. It is an open-ended equity mutual fund which is primarily focused on capital appreciation and ultimately offer the highest possible returns to the investor.     
How are they different from equity mutual fund schemes?

Generally, equity funds allocate their entire corpus to into the equity market. On the other hand, dynamic equity funds follow an alternate strategy wherein they increase or decrease their allocation to both debt and equity assets based on market conditions. Typically, a dynamic equity fund will increase the equity in their portfolio when the markets are down and reduce it when the markets perform well. The equity portion of the portfolio varies depending on the method of calculation used by different fund houses. Most of the fund houses calculate the portion of equity investment either based on the simple Nifty PE or an in-house proprietary model. Therefore, dynamic equity mutual fund manages the risks with dynamic asset allocation. 

Why is it recommended for first-time investors? 

Dynamic equity funds are a great investment avenue for first-time investors as it carries low risk. The mix of equity and debt fund investments balances the risks, which is why it is recommended for first-time investors. Hence if you are a first-time investor, dynamic equity funds will most likely offer you better returns than pure equity funds. 

What are the pros and cons of equity fund? 

Dynamic equity funds may underperform during strong market conditions since they tend to hold higher cash in prolonged rallies. When the market switches into a corrective mode, dynamic fundswitness a minor drop in their net asset value (NAV) as compared to equity funds. Since they rebalance the risks dynamically, it carries lower risks. However, given the low risks, the returns could be lower too. The greatest advantage of dynamic equity funds is that they are structured in a way that allows it to be taxed as equity funds. Generally, equity taxation is only applicable when the scheme is at least 65% of the corpus. Hence the returns you earn from dynamic equity funds are tax-free.
All about Dynamic Equity Funds All about Dynamic Equity Funds Reviewed by Jhon on 11:37 PM Rating: 5