Combine valuation, momentum oriented funds in your portfolio

Alternatively, conservative investors may go for former, risk takers for latter

- HIMALI PATEL

HDFC Balanced Advantage Fund (BAF) recently crossed ₹1 trillion in assets under management (AUM), becoming the second actively managed scheme after Parag Parikh Flexicap to reach this milestone. With assets worth ₹299,506 crore on May 31, the BAF category (also called dynamic asset allocation funds) is also approaching ₹3 trillion in assets, according to the Association of Mutual Funds in India (Amfi).

Why investors are drawn to BAFs

BAFs dynamically adjust equity and debt allocation in response to market conditions. "This flexibility lets investors participate in market growth while the fund manages downside risks, making it useful during periods of volatility or uncertainty," says Gopal Agrawal, senior fund manager - equity, HDFC Asset Management Company (AMC).

Performance consistency is another draw. "The category has delivered good risk-adjusted returns over the past three to five years and performed well across market cycles," says Bhavesh Jain, co-head, factor investing, Edelweiss Mutual Fund. The change in taxation rules for debt funds also propelled investors towards BAFs.

These funds serve as a stepping stone for fixed deposit (FD) investors entering the equity markets. "For first-time investors migrating from FDs, earning returns with lower volatility is a key requirement, which these funds help achieve," says Amit Ganatra, head - equities, Invesco Asset Management (India).

Sound risk-adjusted returns

BAFs reduce equity exposure when markets are unfavourable and increase it when valuations or momentum indicators are attractive. "Executed well, this approach cuts volatility and delivers returns close to those of pure equity funds," says Arun Kumar, head of research, FundsIndia.