Balanced Advantage Funds: Are they right for you?

Balanced Advantage Funds (BAFs) also known as dynamic asset-allocation funds—have become the most popular segment within the hybrid-fund universe. On 31 May 2025, they had assets worth almost 3 trillion (₹299,506 crore) under management.

- Sudipta Mitu

How BAFs Work

BAFs invest in both equity and debt, shifting the mix dynamically in line with market conditions. Unlike aggressive-hybrid schemes (which maintain roughly 65-80 per cent equity), BAFs equity allocation may go as low as 30 per cent or lower and as high as around 80 per cent equity. Proprietary, in-house models—valuation-driven, momentum-driven, or a blend—are used to make these decisions.

Key advantages

By trimming equity in overvalued markets and adding it when valuations improve, BAFs (valuation-oriented ones) try to cushion severe drawdowns and smoothen returns.

The asset-allocation decision—how much to allocate to equity and debt—is handled by quantitative models and fund managers.