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Dynamic mutual funds, aliased dynamic asset allocation fund or balanced advantage funds, is a sub-type of the hybrid fund. Such a mutual fund scheme invests in both equity and debt instruments. Such schemes are afforded immense flexibility, wherein fund managers are at liberty to vary the investment proportions in equity and debt securities, keeping the best interests of unitholders in mind.

Best dynamic mutual funds manage their asset allocation efficiently and focus on generating maximum returns. Dynamic mutual funds are relatively aggressive than other hybrid mutual funds due to their leeway of allocating assets as per market movements.

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Top 10 Dynamic Mutual Funds

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
View All Top 10 Dynamic Mutual Funds

Features of Dynamic Mutual Fund

Asset allocation: The asset allocation of dynamic funds varies as per market situations. So, it remains highly flexible.

Risk-return ratio: Considering the nature of dynamic funds, they bear moderate to high risk. However, the final ratio of risk and return depends on the asset allocation at any point in time. To this end, mutual fund managers are extremely important. They remain in charge of moving funds to generate the maximum possible returns.


The taxation of the best dynamic funds in 2021 depends on their exposure to equity and debt market instruments. A scheme with a 65% allocation to equity on a median basis is treated as an equity fund for tax purposes. Otherwise, it is considered a debt fund.

Long-term Capital Gains Tax: Capital gains on equity funds are treated as long-term if the holding period is 1 year, against non-equity funds where this time-frame is 3 years. LTCG from equity-based funds up to Rs.1 lakh is tax-free. Long-term capital gains from debt-oriented funds attract a 20% tax + indexation benefit, notwithstanding the amount. 

Short-term Capital Gains Tax: For equity-oriented funds, short-term capital gains are liable for a 15% tax. Conversely, STCG from a debt-based fund is added to an investor’s taxable income and taxed accordingly. 

TDS: 10% TDS applies to dividends above Rs. 5000.

Who Are These Funds Suited For?

Best dynamic mutual funds are best suited for individuals with a medium to high risk-bearing capacity. Since it is a sub-type of a hybrid fund, it has exposure to both equity and debt instruments. However, unlike a regular hybrid mutual fund, it has more flexibility in asset allocation, making them suitable for a diverse range of investors. They can well-match short, mid, and long-term investment horizons because of this reason. 

Besides, here are some points to consider before investing in the best dynamic mutual fund.

Investment objective: It’s highly essential to be clear about your investment objective, especially before subscribing to a dynamic fund. Dynamic mutual fund schemes invest with different goals. Thus, it’s imperative that yours aligns with that of the scheme chosen. 

Risk-taking capacity: Since mutual funds are exposed to market fluctuations, it is imperative to weigh the risks before investments. Dynamic funds can be susceptible to market, credit, interest, and inflation risks premised on their asset allocation. Being clear about the extent of risk you can digest will help you find the correct dynamic fund.

Previous performance of a fund: Reviewing the prior performance of funds is imperative before investing. Even though the past performance is not an indication of its prospects, it is still a hint at how a fund provides returns under varied market conditions.

Experience of the fund manager: Evaluating a fund manager’s performance is also vital before making an investment, particularly in the case of a dynamic fund. An experienced fund manager with a proven track record can allocate assets to optimally meet scheme goals. 

Expense ratio: Expense ratio represents the cost required to operate and manage a fund, denoted as the percentage of total AUM. AMCs deduct this cost from the returns generated by the scheme. 

Exit load: Asset management companies levy an additional fee if you leave a scheme before a particular period specified in the scheme related documents. The particulars of this deduction, however, varies as per the terms of a scheme, and some may not have such conditions.

Direct or regular plan: Fund houses directly issue ‘direct plans’. On the other hand, you need to go through an intermediator such as a broker to invest in regular plans. As a result, the expense ratio of direct plans is lower than that of regular plans while reporting a higher NAV. 

Major Advantages

Here are some major advantages of investing in the top dynamic mutual funds –

No mandate for fixed investments: Dynamic funds are not tied down with investment mandates. Therefore, they can invest in different market instruments according to market movements.

Two in one: As mentioned before, dynamic funds can switch between different asset classes per market trends and more flexibly than hybrid funds. This particular fund type adjusts the equity portion’s volatility with debt instruments’ security.

Active risk management: Portfolio managers of the best dynamic mutual funds optimize the investment allocation actively, keeping the market trends and unitholders’ interests in mind.

Higher returns: Dynamic funds tend to offer greater returns than pure debt schemes and some other types of hybrid MFs. It makes them suitable for investors seeking to improve their portfolio’s reward quotient without assuming the high risk involved in equity funds or stocks.

Mode of investments: You can invest in a dynamic fund either in a lump sum or via SIP. The former option lets you invest the entire sum at once. SIP or systematic investment plan allows you to purchase units of a dynamic fund at regular intervals, which can be monthly, quarterly, or half-yearly.

Best dynamic mutual funds stay in tandem with market fluctuations, ensuring a better and balanced return over time.

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