Amid mixed outlook for markets, BAFs may help stabilise portfolios

Balanced advantage funds (BAFs), also known as dynamic asset allocation (DAA) funds, are suited for volatile and uncertain markets as they provide some equity participation while containing downside risk.

- SARBAJEET K SEN

In 2025, a difficult year for equities, BAFs delivered a category average return of 5.2 percent, outperforming flexicap funds (3.6 per cent), midcap funds (2.4 per cent), and smallcap funds (-5.5 per cent).

According to monthly data from the Association of Mutual Funds in India (Amfi), 35 BAFs managed ₹3.23 trillion worth of assets as on December 31, 2025. They received net inflows of ₹16,518 crore in 2025.

How BAFs work

BAFs invest across equities and debt, with allocations guided by internal models that respond to market conditions and valuations. Fund managers construct portfolios within these allocations and continually review the mix. Some asset management companies (AMCs) follow a counter-cyclical approach. Others take a pro-cyclical approach, raising equity exposure when markets trend up, and vice versa.

“BAFs offer a framework-driven way for investors to navigate volatile markets by dynamically adjusting exposure between equities and debt. The key objective is not to maximise returns, but to offer stability and diversification benefits,” says Sorbh Gupta, head-equity, Bajaj Finserv Asset Management.