Balanced Advantage Funds

What Are Balanced Advantage Funds?

Balanced advantage funds are a sub-category of hybrid funds and they invest in both equities and debt. Balanced funds when compared to equity mutual funds, may enable investors to attain their financial objectives with a reduced level of risk. Further, they are different from other categories of hybrid funds too because  under the SEBI regulation depending on the market conditions the investment managers is allowed to move the entirety of the corpus from debt to equity or vice versa without any restrictions. Because of the dynamic allocation techniques used by the fund managers, they can also be referred to as an all-season fund. Essentially, balanced funds lack the restriction in relation to minimum/maximum investment threshold and can adjust their allocations more freely than standard hybrid funds, which retain equity and debt allocations within clear and defined limitations. 

Because of their ease of adaptability to the volatile capital market, these funds are also known as dynamic asset allocation funds. In these funds, the fund manager may change the investing strategy more in favour of debt when equity values are high and more in favour of equities when stock prices are low.

Investing In Balance Advantage Fund Through SIP

The stock market is one of the strongest investing options for creating long-term wealth. A lump sum investment in the stock market is not feasible for all investors. One could alternatively start investing through a SIP. A Systematic Investment Plan (SIP) is a type of investment strategy in which one consistently makes tiny payments over time for purchasing the units of a mutual fund. A SIP has many benefits, including customization, rupee cost averaging, compounding returns, and a better possibility for return generation.

Key Points Which Every Investor Should Keep In Mind Before Investing In Balance Advantage Funds 

Risk: Although these funds invest a sizeable percentage of their assets in debt instruments, there is still some risk involved. The cause is equity components, which expose balanced advantage funds to risks associated with the equity market. As a result, the NAVs change in accordance with market trends. However, compared to pure equity funds, balanced advantage funds are less hazardous such as SBI Balanced Advantage Fund

Return: Balanced advantage funds’ returns wouldn’t necessarily be as high as those of pure equity funds, but they might be higher than those of fixed income funds. If you are a reasonably aggressive investor and have a minimum investment horizon of three to five years, you can anticipate fairly good profits.

Financial Objectives: If you prefer low risk investments, balanced advantage funds may be the best option for achieving your medium to long-term objectives because they have the potential to generate comparatively positive returns over the long term and are tax-efficient when compared to fixed income funds or assured income products.

What Types Of Asset Allocation Models Do Balanced Advantage Funds Employ?

Asset Management Companies employ internal mathematical models to determine how much stock and debt to allocate based on the state of the market. The fund manager’s concept that asset allocation at various valuation levels can produce greater returns for investors over a long investment horizon forms the foundation of most of these models. When using historical data, fund managers properly back-test these models to determine whether the investing goals of the funds can be achieved.

Countercyclical Model: In falling markets, this model reduces debt allocation, whereas in rising markets, it raises equity allocation. These models try to buy cheap and sell expensive. However, different fund managers may employ various valuation metrics, such as P/E, P/B, etc., for dynamic asset allocation.

Pro-Cyclical Model: Pro-cyclical models fundamentally seek to mirror the direction of the market, increasing equity allocation in bullish markets while decreasing it in bearish ones. Pro-cyclical models are based on indicators of market trends, such as daily moving averages and measures of the trend’s health (Standard Deviation, Downside Deviation etc.). Other variables, including as valuations and macroeconomic conditions, may be used in some pro-cyclical models.

Top 5 Balanced Advantage Funds – Basis Past 5 Year CAGR (As on 31st October 2022) 

S.No. Name 5-Year CAGR
1. Edelweiss Balanced Advantage Fund 12.12
2. HDFC Balanced Advantage Fund 11.44
3. Sundaram Balanced Advantage Fund 10.76
4. ICICI Prudential Balanced Advantage Fund 10.66
5. Nippon India Balanced Advantage Fund 9.65

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