Mutual fund investments are not a one-time activity where one can choose a scheme and forget about it. The market is continuously evolving, and its unpredictability requires a strategic approach and quick responses to adapt to these changes. However, in today’s hectic lifestyle, where people have multiple responsibilities from family to work, it can be difficult to monitor the market closely and leverage opportunities by timing the market. Balanced advantage funds (BAFs) offer a solution to this problem.
These funds adjust their portfolio composition, depending on the market conditions, to optimise returns. This helps investors benefit from the expertise of professional fund managers while enjoying the convenience of a hands-off approach. However, before investing, there are 4Ws to understand; What, Who, Why, and When.
A detailed analysis of these important points can help you find out if balanced advantage funds are right for your portfolio.
What is a balanced advantage fund?
Also known as dynamic asset allocation funds, BAFs fall under the category of hybrid mutual funds. They invest in equity, debt, and arbitrage instruments in different proportions as per the current market conditions. These funds offer the benefits of both asset classes, i.e., the potential for high returns from equity and the stability and safety of debt investments.
Who should invest in balanced advantage funds?
- Low-cost investors: Investors who do not want to burden themselves with the expense of buying equity and debt in individual securities can invest in BAFs. Instead of making multiple purchases, a single mutual fund can fulfil both their equity and debt requirements.
- Investors who want to benefit from market volatility: These funds help investors capitalise on market volatility without market timing, ensuring better-than-average returns.
- Conservative investors who want exposure to equity: Although equity investments are known to have a higher risk, BAFs mitigate this by combining with debt securities. This ensures a lower volatility rate while maintaining the growth potential.
- New investors: Beginners who lack expertise in investing can also invest in BAFs as they don’t require any knowledge of fundamental analysis or technical analysis. Simply invest money in these funds and the professional fund manager will take care of asset allocation.
Why invest in balanced advantage funds?
BAFs offer less risks than pure equity or debt funds and more flexibility than balanced funds that follow a specific ratio of securities in a portfolio.
With a dynamic asset allocation strategy, BAFs adjust the portfolio’s equity-debt ratio depending on market conditions, making them ideal for investors who have busy schedules and less knowledge or expertise to manage their portfolios actively.
The dynamic nature of BAFs ensures you don’t have to worry about market fluctuations or timing your investments. Fund managers analyse market indicators and adjust the investment composition of the fund accordingly.
When to invest in balanced advantage funds?
Balanced advantage funds are known as all-season funds. While they use market volatility as a tool to earn returns, you should only invest in BAFs if you plan to stay invested for the long term (at least 5 years).
Short-term investments are not always the best fit for BAFs as they rely on market unpredictability to produce gains. For this reason, investing in BAFs is more suitable for long-term investment plans that require patience and discipline.
You can invest through a Systematic Investment Plan (SIP) to bring discipline and consistency to your strategy as you invest a fixed amount of money at regular intervals. You can either visit the provider’s website or use investment apps to invest in SIP plans offered by BAFs. Simply register yourself on the platform, click on mutual funds, compare different mutual funds, and select the SIP option while buying the balanced advantage fund.
