Dynamic Equity Funds: Why Should you invest in them?

dynamic equity funds

As an investor with a low to moderate risk profile and a penchant for high growth on your money, the dynamic equity fund is just the product for you.

Every investor wants high growth with zero risk on their investment. While no investment can guarantee zero risk, the risk propensity is greatly reduced with a corresponding stable and high growth on your money with dynamic funds. These are further categorised as dynamic equity funds and dynamic debt funds.

What are dynamic equity funds?

The dynamic mutual fund is an asset class that offers investors the option to switch between different options to ensure high growth and reduce the risk. They may the investment in equities or debt. Those allocating higher resources in equities are known as dynamic equity funds.

How does dynamic equitywork?

To understand how dynamic equity funds work, it is important to first get to grips with dynamic mutual funds and their working.

Dynamic mutual funds involve dynamic asset allocation, in which you use the fund’s ability to switch between two types of securities: equity and debt. Doing so helps the fund lower the risk propensity and also ensure growth, by switching from one to the other as per market trends. The switch is done quite seamlessly to combine the essential benefits of equity and debt. As an investor with certain financial goals, you can choose the level of exposure to debt and equities with the dynamic fund.

Let us now go over to dynamic equity funds.

  • Dynamic equity generates high growth – by virtue of higher exposure to the equity markets – and thus, ends up maximising the money you invest in it. However, risk is reduced on the fund since part of the investment is parked in money market securities.
  • As with other equity-exposed securities, you are advised to stay invested in dynamic equity for a longer time to even out the risk potential. Careful handling of the fund ensures good growth, but do make sure to work with an experienced fund manager on the same.
  • Dynamic equity mutual funds ensure good growth without high volatility by seamlessly switching between equity and debt as per market forces. The fund eases exposure to equities when stock prices rise, for example.
  • The allocation on the fund is automatic, without the need for your constant intervention to actually make the switch between asset classes.
  • With a dynamic equity fund, you can expect about 65% exposure to equity securities. From the tax point of view, this means that you get tax-free returns on equities if you hold the dynamic fund for a period of over one year. At the same time, dividends are tax free on the dynamic debt funds with exposure to the money markets at less than 65%. Do consult the fund manager on the tax implications of the fund before investing.