Mutual funds are subject to market risks. This means that investment returns can vary depending on market conditions or a rise or fall in interest rates. However, expert fund managers look closely at the market conditions to make changes within an existing MF scheme.
There is no fixed allocation in a dynamic fund. For instance, the equity component of a dynamic MF scheme can be hiked if the fund manager believes that the stock markets are undervalued. There is no fixed duration or tenure for the scheme, so you can redeem the investment at any point.
This differs from a balanced mutual fund scheme where the split between equity and debt component is roughly 35-65. A dynamic fund can have up to 100% equity or debt depending on how the markets move at the time.
Instead of letting an investment stay idle, the fund managers play an active role in making regular tweaks. This could be beneficial if you are an investor who is only comfortable with low-to-moderate risk mutual funds.
As an investor, you could also opt for pre-generated SIP packs through the Standard Chartered mutual fund platform.
Dynamic funds are dependent purely on the performance of the fund manager. Hence, it could be beneficial to keep a track of the fund manager’s track record over the past three to five years. Here are three factors to consider:
- Fund performance: Each MF scheme undergoes changes based on the fund manager’s investment strategy. Hence, looking at daily or weekly net asset values of MFs may not be helpful in determining whether it is the right investment. Annual returns could be the better measurement of the returns. Investing for at least three years or above could be conducive to wealth accumulation.
- Taxation: Unlike other MF schemes, dynamic funds are taxed based on their portfolio. If the fund is composed of over 65% equity, the scheme is taxed as an equity fund. This means that long-term capital gains (LTCG) and short-term capital gains (STCG) taxes will apply. STCG is applicable 15% plus cess if the MF is redeemed before 12 months. LTCG applies at 10% for investments above Rs 1 lakh for all redemptions after 12 months.
- Financial goals: Despite the fund manager’s best efforts, mutual funds could be volatile. Immediate financial goals such as wedding expenses or home renovation could need funds on a short-term basis that can be instantly redeemed without penalties. Niche schemes such as dynamic funds could be an alternative for long-term goals such as a child’s education or buying a home. For instance, dynamic funds could help in wealth accumulation over a three-to-five-year period for property purchases. So, making investments based on individual life goals could be ideal.
Though the fund manager takes responsibility for the scheme’s performance, staying apprised of the latest market developments could come in handy. Here, Standard Chartered wealth podcast could help make informed decisions.
Unlike regular MFs, dynamic funds may require minimal intervention during volatile cycles. Being flexible in nature, they could also aid investors in reaping the benefits of rate fluctuations. This could enable the fulfilment of the dual goals of wealth creation and wealth accumulation. However, it is imperative to review the scheme details on a periodic basis. Along with your existing investments, dynamic mutual funds could be a good addition to achieve your life goals consistently.
This article is for information and educational purposes only. It is meant only for use as a reference tool. It has not been prepared for any particular person or class of persons. The products and services mentioned here may not be suitable for everyone and should not be used as a basis for making investment decisions. This article does not constitute investment advice nor is it an offer, solicitation or invitation to transact in any investment or insurance product. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment. Prior to transacting, you should obtain independent financial advice. In the event that you choose not to seek independent professional advice, you should consider whether the product is suitable for you. You should refer to the relevant offering documents for detailed information.
Standard Chartered Bank is a distributor of mutual funds and referrer of other third party investment products and does not provide any investment advisory services as defined under the SEBI (Investment Advisers) Regulations, 2013 or otherwise. Investments are subject to market risk. Read scheme related documents carefully prior to investing. Past performance is not indicative of future returns.
