Disadvantages of Dynamic Funds
1. Higher Expenses: Active management incurs costs and dynamic funds generally have expense ratios compared to passive index funds.
2. Performance Uncertainty: The fund managers ability to make accurate asset allocation decisions plays a role, in the funds performance. Poor decisions can result in underperformance.
3. Tax Implications: Frequent changes in asset allocation may lead to capital gains taxes, impacting after tax returns.
4. Lack of Predictability: The changing nature of funds can make it challenging for investors to predict their future performance.
5. Market Timing Risk: Dynamic funds rely on the fund managers ability to time the markets effectively which can not be always successful.