The Balancing Act Of The Balanced Advantage Fund

Dispelling certain myths about balanced advantage funds (BAFs) is necessary. They may not be all-season investments as they are generally made out to be. The article explains in depth what BAFs are all about

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Mutual funds have had massive inflows over the last two to three years, but one category has become a preferred choice. Balanced advantage funds (BAFs), also known as dynamic asset allocation funds, are highly regarded by both investors and advisers. In the past one year alone, six new BAFs have entered the market, contributing to the category's impressive AUM of ₹1.923 lakh crore. It now trails only the large-cap and flexi-cap equity fund categories in terms of popularity.

The BAFs’ pledge to address market volatility in order to ensure a more comfortable journey towards wealth-building is the main draw for investors. These funds are advertised as offering the best of both worlds because they protect the portfolio from losses while yet allowing for profits. Let's examine what proportion of individual funds' performance depends on their allocation strategies and whether you should include these funds in your portfolio.

Asset Allocation

According to market conditions, BAFs dynamically adjust the allocation to stock and debt. However, there are many different ways they accomplish this. Within a range of 30 to 80 per cent, certain funds change the equity allocation. Others are free to maintain an equity allocation that ranges from 0 per cent to 100 per cent. In addition to making decisions on asset allocation, BAFs actively hedge equity positions, which further reduces losses during economic downturns.