Balanced Advantage Funds: The Pros & Cons

A prudent strategy for conservative to moderate investors involves considering funds that blend equity and debt, offering stability amid equity fluctuations. Balanced advantage funds which invest in both equity and debt present an appealing option

The Indian equity market is currently trading at an all-time high. Most of the indices have soared by over 20 per cent since the fiscal year began. This presents a challenge for potential investors. Investing in equity at such elevated levels carries the risk of diminished future returns or in the worst-case scenario a market downturn, both unappealing prospects for any investor. While long-term investors may find pure equity mutual funds favourable, those seeking a less aggressive or conservative approach might face volatility-induced discomfort in an overheated market.

Therefore, a prudent strategy for conservative to moderate investors involves considering funds that blend equity and debt, offering stability amid equity fluctuations. Balanced advantage funds which invest in both equity and debt present an appealing option. For those seeking incremental investments, these funds have shown resilience in navigating market fluctuations and have delivered good risk-adjusted returns.

Understanding Balanced Advantage Funds

Balanced advantage funds, also known as dynamic asset allocation funds, are a hybrid breed among mutual funds that actively manage their asset allocation between equity and debt based on market conditions. These funds utilise quantitative asset allocation models to dynamically adjust their portfolio mix. To qualify for equity-like tax treatment, they maintain at least a 65 per cent allocation in overall equity plus arbitrage, with the remainder invested in debt instruments. What sets them apart from conventional equity or debt funds is their adaptable approach to different asset allocations.