4 W’s of Balanced Advantage Funds

What is a Balanced Advantage Fund?

A balanced advantage fund is a fund that can invest 0-100% in the equity market or 0-100% in the debt market dynamically as per the prevailing market condition.

For example – If a fund manager finds that the price of the equity market has gone up, he will tilt the portfolio more toward the debt market.

Likewise, if the equity market trades at a discount, then the fund manager can tilt/shift the portfolio toward the equity market. 

The valuation is the internal process of the fund. Based on valuation, the fund manager can take the call. This way, the fund manager can take the opportunity and change the asset allocation.

The fund manager can go aggressive in the equity market or can also decide to play conservatively to reduce the portfolio’s volatility. The aim is to minimize the portfolio’s downside risk and maximize the returns. 

Who should invest?

1. Investors who are looking for long-term wealth creation.
2. Investors who are not comfortable with the market volatility.
3. Investors who do not want to face high volatility and looking for equity-like returns.
4. Investors who are unsure which type of fund they should invest in, whether in the equity or debt-oriented fund.
5. Risk-averse equity investors with an investment horizon of more than three years.

Additional read: Financial mistakes to avoid

Why should you invest?

1. A balanced advantage fund is a dynamically rebalancing fund between two asset classes, i.e. equity and debt.
2. It has the complete flexibility of rebalancing from 0-100% in both asset classes.
3. It provides you with better risk-adjusted returns.
4. It manages the equity market volatility and provides stability in the portfolio by diversifying the portfolio into the debt market.
5. It offers you equity-like returns, which help your portfolio to grow at a much faster rate than debt funds and also helps you to beat inflation.
6. Minimizes the downside risk and provides scope for growth by investing in the equity market.

When should you invest?

1. When the volatility in the equity market increases you do not want to have such high exposure to the prevailing volatility.
2. When you want equity-like returns but do not want to face high liquidity.
3. First-time mutual fund investor looking for long-term wealth creation.

Conclusion

Try to allocate some portion of your portfolio towards a balanced advantage fund if you want to reduce the portfolio’s volatility. A balanced advantage fund is like a season fund.