While equity markets are part of an elongated cycle, they are inherently volatile, with plenty of ups and downs. Thus, balanced advantage mutual funds have gained massive popularity in the past few years.
In fact, the dynamic asset allocation funds, BAF, received significant inflows worth Rs. 3,793 crores in December 2021. This valuation was given the second-highest rank among all hybrid and equity-oriented funds.
On the other hand, BAF’s asset under management (AUM) also elevated the maximum among all hybrid and equity funds. And in 2021, it had a total sum of Rs. 71,587 crores.
Therefore, this dynamic asset allocation fund seamlessly invests in debt and equities according to market circumstances. Balanced Advantage Fund does so to balance the risk and return.
This article will discuss some of the most commendable advantages of balanced advantage funds. But before that, we will take a quick look into the meaning of this unique investment option. Please keep reading until the end of the article to know more and make an informed decision.
Let’s dive in!
Balanced Advantage Mutual Fund – An Overview
Before we head over to determine the benefits, we will quickly find out “what are balanced advantage funds.”
Well, balanced advantage funds are typically hybrid funds that invest in both bonds and stocks. Unlike the traditional hybrid funds that hold debt and equity allocations within defined limits, BAFs don’t have such constraints. In fact, balanced advantage mutual funds can seamlessly modify their allocations in a more flexible manner.
BAFs are also known as Dynamic Asset Allocation Funds since these funds can efficiently adapt to the dynamic capital market. When equity values are substantially higher in these funds, the fund manager might adjust the investment strategy towards debt. On the contrary, when the stock prices are low, the allocation might shift more towards stocks.
However, the fund manager makes use of a process-driven method known as an asset allocation model. It helps in adjusting the portfolio between debt and equities according to market circumstances.
So, when the share prices are considerably higher, the investors don’t experience a significant drop in their invested capital. It’s because the majority of their stake remains within debt instruments. Likewise, the investors will also benefit when the markets rebound, as the portfolio manager will invest more in low-priced stocks.
Benefits of Investing in Balanced Advantage Funds
Here, we have made a comprehensive listing of the benefits of balanced advantage funds:
● Dynamic Allocation Strategy
BAFs are essentially managed by fund managers who employ a dynamic asset allocation strategy. Therefore, they are capable of adjusting the investment of the funds in response to the altering market condition.
And when the markets are performing well during a phase of economic growth some investments might be shifted. The investments are moved from debt to equity instruments only to take advantage of the upward trend.
On the contrary, during periods of economic downturn, the fund manager may shift some investments from equity to debt. It is basically performed to mitigate the investment risks.
● Steady Returns
The balanced advantage fund dynamically invests in both equity and debt. So, as a result, the investors benefit from a debt shield only to combat the volatility of equity markets. Besides, the returns from balanced advantage funds could become steadier than those from equity-oriented funds.
● Relatively Lower Risk
Likewise, equity funds, BAFs also invest in debt securities as per the market conditions. In fact, this also helps in lowering the overall portfolio risks.
Since the fund portfolio has lower exposure to the vagaries of the equity markets, the risk of capital erosion is much lower. Therefore, the BAFs make a remarkable bet if your risk tolerance is moderate. In fact, the equity exposure in the fund portfolio can also help in wealth creation.
● Remarkable Tax Benefits
BAFs are usually classified as equity-oriented funds for taxation purposes. So capital gains are taxed at 10% if the investments are held for more than 12 months. But if the investments are held for up to 12 months, then it’s taxed at 15%.
● Demands Less Monitoring
You can always invest in a good mix of bonds, stocks, and several other instruments and hold a diversified investment portfolio. However, keeping track of all the instruments might be overwhelming and cumbersome.
But a balanced advantage fund is a one-stop solution to diversify your portfolio across several equity bonds and securities types. So, instead of monitoring ten different investments, you can easily monitor only one investment.
To Conclude
If you are looking forward to investing in balanced advantage funds, then you can consider Edelweiss balanced advantage funds. Their investment option will enable potential investors like you to achieve all your financial goals. In fact, you can do so at a lower risk than equity funds.
So, what are you waiting for? Get in touch with Edelweiss to start investing in this all-season fund – Edelweiss MF.
