What is a Balanced Advantage Fund and Why Should You Invest?

 

As an investor, one always looks for enhancing the returns while keeping the portfolio dynamic. While there are endless opportunities to invest in the market in the form of equities, debts, and derivatives. But if one is looking forward to exploring all of them based on the market conditions then a balanced advantage fund is the answer to it! Investment in Balanced Advantage Funds is a great way to diversify your portfolio. Let us understand what balanced advantage funds in-depth and should you invest in them. 

What are balanced advantage funds? 

In the investment journey, one should have the ability and willingness to shift to outperforming assets from the underperforming ones. A balanced advantage fund gives the investor the ability to switch assets based on market conditions. In technical terms, they are also known as Dynamic Asset Allocation funds- a category of Hybrid Mutual Funds as specified by SEBI that invest in asset classes like Equity and Debt, and keep modifying their asset allocation based on the market valuations. These funds, based on the market valuations, keep increasing or decreasing their allocation between debt and equity. To summarise, balanced advantage funds are a mix of fixed income instruments and stocks. 

 

Key Benefits of Balanced Advantage Funds 

 

Efficient management of market volatility 

One can manage market volatility and strive to limit the losses when the market conditions are favorable. The strategy here is buying and selling assets based on market valuations. For example, one can sell assets at high market conditions while buying them at a fair valuation. 

 

Diversification of Portfolio 

 Since the investor invests across various asset classes, the diversification of the portfolio is an important benefit. This also ensures optimum returns with minimum risks for the investors. 

 

Dual Benefits – Equity for growth, Debt for stability

 As the balanced advantage funds invest in both debt and equity markets, an investor is benefitted from both. For long-term wealth creation, equity investments give market-linked returns that may help in beating inflation. Investments in debt securities offer moderate return potential with minimum risks. This helps to limit the losses during steep market conditions. 

 

Why should you invest in Balanced advantage funds? 

1. One should invest in Balanced advantage funds if it is for the first time in the stock market as they give higher returns than debt securities while offering lesser risks than pure equity stocks. 
2. If the market is volatile at the time of investing then balanced advantage funds are a good way to adjust asset allocations depending on the market valuations. This ensures risk-adjusted returns that help attain long-term financial goals. 
3. If one wants to avoid timing the stock market then balanced advantage funds are a great way to do so. It self adjusts itself if the market crashes and then bounces back once the conditions are favorable. This limits the losses as compared to pure equity investments and also makes the portfolio dynamic. 
4. If one invests in balanced advantage funds then the equity allocation may offer inflation-beating returns over the years. However, you must invest in balanced advantage funds only if it matches your investment objectives and risk tolerance. 

 

Bottom line, Balanced Advantage funds are a great way to diversify your portfolio while ensuring optimum risk-adjusted returns. At Khasnis Prime Wealth, we use our years of experience to analyze your financial goals and study the market conditions to recommend you the balanced advantage funds as per your needs.