Dynamic Asset Allocation Funds/ Balanced Advantage Funds Performance review (3Y, 5Y & 10Y)

Ayesha Bee
9 hours ago
4 min read

Introduction

According to the Securities and Exchange Board of India (SEBI), a Dynamic Asset Allocation Fund (also referred to as a Balanced Advantage Fund) is classified as a Hybrid Mutual Fund Scheme.

As per SEBI’s Categorization and Rationalization of Mutual Fund Schemes (October 2017):

Dynamic Asset Allocation/Balanced Advantage Funds are hybrid schemes where the allocation between equity and debt is managed dynamically, based on market valuations, macroeconomic conditions, or other quantitative or qualitative models defined by the fund house. Unlike pure equity categories such as Flexi Cap Funds, where equity exposure remains fully invested and varies primarily across market capitalizations, these schemes adjust the equity–debt mix itself in response to changing conditions.

Dynamic asset allocation funds are commonly benchmarked against blended hybrid indices that combine equity and debt in fixed proportions, reflecting their hybrid nature. Popular benchmarks include the CRISIL Hybrid 50+50 – Moderate Index, which allocates 50% to equity and 50% to debt, representing a moderate-risk strategy, and the NIFTY 50 Hybrid Composite Debt 50:50 Index, which balances growth from the NIFTY 50 with stability from debt instruments. Together, these benchmarks provide a neutral reference point to evaluate the performance of dynamic asset allocation funds across varying market conditions.

Key SEBI points:

There is no fixed minimum or maximum equity allocation prescribed
The equity–debt mix can change actively depending on market conditions
The strategy and limits must be clearly disclosed upfront
Asset allocation decisions are model-driven, and the fund manager executed
Classification is at the scheme level, not the investor level

The Scheme Information Document (SID) is a mandatory legal document filed with SEBI for every mutual fund scheme. For a Dynamic Asset Allocation Fund, the SID is especially important because SEBI allows flexibility, and the SID tells you how that flexibility will be used.

What the SID clearly discloses:

Type of scheme	“Open-ended Dynamic Asset Allocation Fund / Balanced Advantage Fund”
Asset Allocation Range	Example: Equity: 30% – 80% Debt & Money Market Instruments: 20% – 70%
Allocation Methodology	Valuation metrics used (P/E, earnings yield, bond yields, volatility, etc.) Whether the model is rule-based, discretionary, or hybrid
Use of derivatives	Many funds explain how derivatives are used to manage risk or maintain equity taxation
Risk profile & suitability	Usually categorized as Moderate to Moderately High Risk
Rebalancing frequency	Daily / weekly / periodic triggers

3-Year Performance of Dynamic Asset Allocation Funds vs Benchmarks

Line chart comparing 3-year returns of Dynamic Asset Allocation Funds, showing individual fund performance versus benchmark returns across multiple fund houses, with most schemes clustering between roughly 12% and 18% while benchmarks remain near a flat level.

Out of the 28 Dynamic Asset Allocation/Balanced Advantage Funds analyzed, 25 funds have outperformed their respective benchmarks over the 3-year period, indicating that dynamic equity–debt allocation strategies have largely been effective.

Only 3 funds have underperformed their benchmarks, and even in these cases, the extent of underperformance is marginal—less than 1 percentage point. This suggests that while allocation models and execution differ across fund houses, the downside from underperformance has been limited.

5-Year Performance of Dynamic Asset Allocation Funds vs Benchmarks

Line chart showing a 5-year performance comparison of Dynamic Asset Allocation Funds, plotting each scheme’s annualised returns against its benchmark, with fund returns ranging from the low single digits to above 20% while benchmark returns remain clustered around the 10–11% range.

While 15 out of 21 funds have outperformed their respective benchmarks, the extent of outperformance is significant, with the highest positive return differential reaching approximately 10 percentage points, indicating strong value addition through effective dynamic allocation in certain funds. Conversely, 6 funds have underperformed their benchmarks, with the maximum underperformance limited to around 4.2 percentage points.

This asymmetry suggests that although underperformance exists, the downside deviation relative to benchmarks is comparatively contained, whereas successful strategies have been able to generate substantial excess returns. Overall, the results indicate that dynamic asset allocation can generate meaningful alpha over longer horizons; however, outcomes remain sensitive to the robustness and execution of each fund’s allocation model.

10-Year Performance of Dynamic Asset Allocation Funds vs Benchmarks

Bar chart comparing 10-year annualised returns of Dynamic Asset Allocation Funds with their benchmarks, showing fund returns mostly in the 8% to 16% range alongside benchmark returns clustered around roughly 11%, across schemes with a full decade-long performance history.

Over the 10-year period, only 13 Dynamic Asset Allocation / Balanced Advantage Funds were in existence. Of these, 7 funds representing more than 50% of the sample have underperformed their respective benchmarks.

However, it is important to note that the degree of underperformance is relatively mild, with return shortfalls largely limited to a narrow range of 1–2 percentage points. This suggests that while consistent long-term outperformance has not been universal across the category, downside deviation from benchmarks has remained contained.

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Conclusion

Dynamic Asset Allocation (Balanced Advantage) Funds are best suited for moderate-risk investors who seek equity participation with built-in downside management and do not wish to actively time or rebalance their portfolios. They are particularly suitable for first-time equity investors, conservative equity investors, and long-term investors seeking smoother returns across market cycles , often under the guidance of an investment adviser.

Overall, the analysis suggests that Dynamic Asset Allocation/Balanced Advantage Funds have largely fulfilled their intended role of delivering equity-linked growth with controlled downside risk, particularly over short to medium investment horizons. The 3-year and 5-year performance results show strong evidence of value addition, with a clear majority of funds outperforming their benchmarks and with upside potential that significantly outweighs the magnitude of underperformance. Even where underperformance exists, it is generally limited and asymmetric, reinforcing the risk-managed nature of the category.

However, the 10-year analysis presents a more nuanced picture. With only a limited number of funds having a full decade-long track record, more than half underperformed their benchmarks, albeit by a narrow margin of 1–2 percentage points. This suggests that while dynamic asset allocation strategies are effective in managing volatility and avoiding severe downside, sustained long-term alpha generation is not guaranteed across all funds and remains highly dependent on the discipline, consistency, and robustness of the allocation model employed by each fund house.