Over the last 2 years, the concept of asset allocation has taken a stronger foothold in the mutual fund industry. Now with the broader market valuations reaching close to the historical peak, the concept is getting spoken about even more. Older asset allocation funds like monthly income plans or balanced funds were static in nature—they invested in debt and equity in the same proportion regardless of market conditions.
However, for the new launches (in some cases existing funds have changed their investment strategy), strategy has evolved to dynamic shifts in the debt equity allocation based on market conditions. These funds, known as dynamic asset allocation funds, switch between equity, equity-linked derivatives and debt—based on quantitative models linked to valuation.
