Why Balanced Advantage Funds Are Back in Focus

DAAFs offer strong downside protection, low volatility, and steady returns

- RUSHABH DESAI

Dynamic asset allocation funds (DAAFs), also known as balanced advantage funds, invest across equity and debt in a flexible, market-responsive manner. In theory, these funds increase equity exposure when valuations are low and shift towards debt when equity valuations appear stretched. This ability to dynamically balance risk and reward makes them particularly attractive to moderate-risk investors looking for inflation-beating, tax-efficient returns, without the need to time the market.

Historical data reveals that DAAFs have offered strong downside protection, relatively low volatility, and consistent returns, especially appealing for moderate-risk investors. On a 5-year daily rolling CAGR basis since each fund's inception (as of 30 April), none of the DAAFs delivered negative returns, even during major market downturns like the 2008 global financial crisis and the 2020 Covid crash.

Minimum returns ranged from 0.1% to 13.7% CAGR (average: 4.3%). Average returns ranged from 5.9% to 18.8% CAGR (average: 11.1%). Maximum returns ranged from 13.0% to 57.0% CAGR (average: 20.3%).