Aatmanirbhar Scheme of Mutual funds

This note is about Aatmanirbhar Scheme of Mutual funds, no this not any NFO this is pretty old scheme available but got into limelight recently after the Covid Crash. Why it’s called Aatmanirbhar scheme? These schemes are called Dynamic Asset Allocation Funds or Balanced Advantage Funds, based on the market valuation it switches between Equity and Debt on its own, so its self dependent and i have rechristen it has Aatmanirbhar Scheme.

These schemes are already part of my recommendation list; i would have suggested this for someone who wants to play very safe at the same time have equity exposure, so some of you would already have it in your portfolio. But, after the recent crash even clients who are long termers or aggressive risk clients have raised a query on timing the investments, so this is for someone who gets struck in Equity Chakravyuha like Abhimanyu (not knowing when to exit or enter) as the fund itself takes the call. So after the Covid virus two terms have become very famous one is Balanced Advantage Funds and the other one is Aatmanirbhar. Enough of my drama lets go into the scheme details:

Dynamic Asset Allocation aka Balance Advantage Funds aka Aatmanirbhar funds are Hybrid funds which switch between Equity and Debt based on certain parameters. There are predominantly two strategies these funds follow, one is Counter cyclical (buy low and Sell high) and another Pro cyclical approach , which is also called as Momentum investing where the Fund manager increase the equity exposure when markets go up and decrease the equity exposure when the markets are trending down. All these are based on some pre defined parameters, so the fund manager doesn’t have much role here except for the selection of Stocks and Debt instruments.

Advantages:

1. Manages Asset Allocation (Debt vs Equity) on its own
2. It manages Value Based Investing i.e. Invests-Disinvests at right valuations
3. Buy Low – Sell High – constant profit booking (or through Pro Cyclical model which will reduce Equity exposure during Bearish Trends and increase the same during Bullish Trends)
4. The fund takes active Derivatives call to manage for Equity Taxation
5. Participates in Upside during Bullish Markets (but will slightly lag diversified funds)
6. Protects Downside during Bearish Markets
7. Delivers returns even during stagnant Market period due to Buy Low- Sell High strategy
8. One can use it under SIP, STP or Lump Sum strategies
9. Suitable for All Age Groups – be it youngsters or Senior Citizens
10. Can be used effectively for tax efficient cash flow creation for Senior Citizens through SWP

DAAF provides less volatile and very smooth experience to us as it arrest the fall during market crash.

No need to time the market and there won’t be panic selling too and whatever the market condition is the less volatile feature of these funds will keep us stay invested for long term.

How these funds performed during different market conditions and will it be suitable for Senior Citizens or people who want to plan for retirement? will try to answers these questions in the next post.

Happy Investing!

R♥Vi

Disclaimer: The information contained in this document is for general information purposes only. Views expressed cannot be construed to be a decision to invest. The statements contained herein are based on current views and involve known and unknown risks and uncertainties. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice. Past returns are not guaranteed.