What Are Balanced Advantage Funds?
Published On Sep 24, 2021
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Dynamic Asset Allocation or Balanced Advantage Funds are hybrid funds that are free to manage their equity and debt exposure without any SEBI-imposed ceilings or minimum exposure requirements. With the help of their in-house proprietary models, these funds adjust their exposure to stock and debt instruments in response to changing equity prices. These models assist their funds in avoiding human biases when making investing decisions. They also have exposure to equities derivatives in order to conduct hedging techniques and take advantage of equity tax treatment when the stock market is overpriced.
What are the Benefits of Balanced Advantage Funds?
Here are some of the benefits offered by balanced advantage funds.
- Protective Against Volatility - Multi-dimensionality is a feature of Balanced Advantage Mutual Funds. When markets are overvalued, they take on the characteristics of a hybrid scheme, and equity exposure can be reduced to as little as 30%.
- Can Be Used As A Balanced Fund - In a fair value market, a Balanced Advantage Fund can actually provide the same returns as a standard balanced fund while maintaining the balance between equity and debt exposure.
- Good Growth Can be Generated - When markets are undervalued, Balanced Advantage Funds can raise equity exposure to as much as 80% to profit from cheaper valuations. In such a case, it can operate as an equity fund.
- Ability To Perform In Flat Markets - Balanced Advantage Funds can perform even in flat markets as they include an arbitrage component.
- No Needs to Time the Market - Since they use dynamic allocation, Balanced Advantage Mutual Funds reduce the need to time the market.
Who Should Invest in Balanced Advantage Funds?
Long-term investors of all types can benefit from Balanced Advantage Funds:
1. Investors seeking a more aggressive alternative to pure Debt Funds may consider this option.
2. Investors seeking a better rate of return while minimising their losses in the event of a market downturn.
3. First-time mutual fund investors looking for a long-term investment route for wealth creation should invest in a diverse portfolio and leave asset allocation to an expert.
Why Should You Invest in Balanced Advantage Funds?
In an uncertain market, it may be the best and most appropriate investment vessel. Because the investments are widely spread out, the dynamic funding system is a better solution than static allocation funds. When a competing investment vehicle fails, the liquidity is often moved to another vessel that is performing better, according to a dynamic asset allocation approach. The fundamental advantage of these funds is their built-in dynamic character. It's a strategy for avoiding market downturns. For those searching for guaranteed returns at the end of their term, the balanced funding option is strongly suggested. It's also a good option for people who don't have a lot of money to invest in different areas. Dynamic asset allocation Mutual Funds are valued above all because of their consistent and recurrent returns.
Investing in BAF eliminates the need to time the market because the scheme seeks out the best possibilities for the investor at all times of the market cycle. It handles asset allocation, which is the most significant benefit for an individual who likely lacks the time or resources to research the market and investment prospects. Hence, BAF can be seen as a perpetual solution to the problem of long-term volatility.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.