In simple terms, Balanced Advantage mutual fund shifts between equity and debt depending on the market valuations. It means that when the market is high, the fund decreases exposure to equity and moves the money into debt. This helps protects the downside if the market falls. These funds are also known as Dynamic Asset Allocation Fund.
On the other hand, if the market is low, the fund increases the exposure to equity and reduces the debt side.
This strategy helps reduce the volatility of the fund and at the same time ensures that the returns potential are down. Some examples are; ICICI Prudential Balanced Advantage Fund, MotilalOswal Most Focused Dynamic Equity Fund, HDFC Balanced Advantage Fund, etc.
How does it work?
Balanced advantage fund follows a predefined algorithm based on the market PE or P/BV (price to book value) or some other indicator to understand whether the market is on the higher or lower side. Based on this calculation, the equity exposure is then increased or decreased.
The main benefit of Balanced Advantage fund is that it can keep a check on extreme upside or downside. This will ensure you are not in deep losses. However, it also means that you will not be able to get high profits as well. It will, with any doubt, provide you with decent market returns. In general, balanced advantage fund take advantage of the market volatility to ensure you get positive returns.
Who should invest in Balanced Advantage Fund?
Balanced advantage fund is suitable for investors looking for low risks but at the same time get better returns than fixed deposits. Although the fund value will be volatile, it is not as high as a pure equity fund. Also, it gives 2-3% higher returns than FDs, when invested for a long-term.
When to invest in Balanced Advantage Fund?
You can invest any time as the equity exposure is controlled by the fund itself. There is no need to time the market as the fund takes care of it internally. Also, you can invest through SIP or invest a lump sum amount.
Although anybody can invest in balanced advantage fund, investors looking for high returns and can take high volatility should not invest in the fund. However, if such an investor is unsure about the market and wishes to play safe, may consider investing lump sum in balanced advantage fund and then set up a Systematic Transfer Plan (STP) to an equity fund. This will help reduce risk to an extent.
Balanced advantage fund is a boon for retired investors. Such investors usually look for higher returns than fixed instruments and the same time cannot handle high volatility in their portfolio.
To sum up, balanced advantage fund is a great investment option for conservative investors even for a long-term. It is advisable that you do thorough research about the various investment plans available and then invest in the one that suits your requirements. You may even consider taking help from expert and reputable financial planners.