INVESTORS CAN USE THESE MUTUAL FUNDS TO OVERRIDE THEIR BEHAVIOURAL BIASES

It'soften said that investing is neither an art nor ascience—it's abit ofboth. Beyond conventional balanced funds lie newer categories of hybrid products that try to blend the art of investing with the science of using models to balance risk and manage volatility.

- ANTHONY HEREDIA

Often, the biggest challenge for investors lies in reducing the gap between a fund's performance and their own investment portfolio performance.

And what tends to come in the way is not the market or fund outcomes—over cycles, these end up delivering—but how the investor ends up controlling their own investing journey through those cycles. The popularadage goes, ‘Get greedy when others are fearful and vice-versa,’ but doing so in real life is very tough. Here’salook at three types of funds that investors could consider.

Balanced advantage funds, or BAFs, aim to eliminate an investor’stendency to overreact on either side of amarket cycle. BAFs do this by automating the process of equity allocation based on time-tested models. They try to increase equity allocations when valuations are reasonable and reduce them when they turn expensive. There isalso allocation to debt, which provides stability. Different BAFsuse various measures to gauge whether market valuations are cheap or expensive.