A balanced advantage fund is a type of hybrid mutual fund which is also alternately termed as dynamic asset allocation fund. Here, both debt and equity are considered for asset allocation and are dynamically managed based on the existing market conditions.
Models used by balanced advantage mutual funds
Every AMC maintains their individual mathematical standards to designate the share of debt and equity based on contemporary market conditions. It depends on the expertise of the fund managers who design these models for superior return generation, especially in the long run. The two basic models that are followed by a balanced advantage fund are:
- Counter-cyclical model: This model enhances equity allocation by lowering debt allocation during market fall and vice versa. This particular model encourages selling high and buying low. However, it depends on the discretion of the concerned fund manager to use varied valuation metrics to maintain the best asset allocation techniques.
- Pro-cyclical model: This model sticks to the ongoing market conditions, enhancing equity allocation during market highs and vice versa.
Factors to consider before investing in a balanced advantage fund
Some of the major factors that every investor must consider before investing even in the best balanced advantage funds are:
- Risk: Although these funds maintain a certain portion in debt securities, they are still not fully risk-free. The equity components make them vulnerable to market risks, thus fluctuating the NAV according to market trends. However, when compared to pure equity funds, these are slightly less risky.
- Return: Generally, the returns of balanced advantage funds are comparatively more than any standard fixed-income fund. If you can maintain at least 3 years investment horizon with a moderately aggressive approach, you can expect satisfactory returns.
- Financial goals: If you are a safe player, then these balanced advantage funds are perfectly suitable for fulfilling your mid and long-term goals, generating comfortable returns, especially in the long run. These are even tax-efficient when compared to fixed-income funds or assured income instruments.
- Investment horizon: The ideal investment horizon in this case must range between 3 and 5 years to enjoy comfortable returns.
Advantages of balanced advantage funds
Some of the major advantages of balanced advantage funds are:
- Ensuring stable returns: One of the most highlighting characteristics of a balanced advantage fund is that it dynamically invests in both equity and debt. This makes the return generation comparatively more stable than that of equity funds. The investors can enjoy a protective cushion of debts to combat the market volatilities efficiently.
- Comparatively low risk: Considering the market conditions, these funds even invest in debt securities along with equity funds. This is the ideal avenue for investors with moderate risk appetite as the concerned fund portfolio is comparatively less exposed to the equity markets, lowering the risk of capital erosion. Moreover, equity exposure also ascertains wealth creation.
- Dynamic asset allocation strategy: The fund managers of balanced advantage funds tend to follow a dynamic asset allocation strategy. During the bull phase, he/she may transfer a certain portion of the investment from the debt market to equities and vice versa, during market downturns.
- Does not require too much monitoring: You may maintain a satisfactory financial portfolio. However, keeping proper track of all the performances is a hectic and confusing process. However, in the case of balanced advantage funds, you can easily diversify your financial portfolio among various bonds and equity securities. Therefore, if it is in sync with your risk appetite and investment objective, it is best to invest here and monitor only one investment.
- Tax benefits: These funds are normally classified as equity-oriented funds for taxation. The capital gains are taxed @ 10% excluding indexation if the investment tenure is within 1 year. In case, the investment tenure rises above 1 year, then the taxation limit rises to 15%.
Best balanced advantage funds
|FUND NAME||FUND SIZE (INR)||RETURNS (p.a.)||ETM Rank|
|HDFC Balanced Advantage Fund||49,709 Cr.||+18.6%||#5 of 16|
|Edelweiss Balanced Advantage Fund||8927 Cr.||+14.81%||#1 of 16|
|Franklin India Dynamic Asset Allocation Fund||1097 Cr.||+13.83%||Unranked|
|ICICI Prudential Balanced Advantage Fund||44002 Cr.||+12.93%||#6 of 16|
|Nippon India Balanced Advantage Fund||6681 Cr.||+12.71%||#4 of 16|
|Aditya Birla Sun Life Balanced Advantage Fund||6860 Cr.||+12.59%||#5 of 16|
|Axis Balanced Advantage Fund||2411 Cr.||+10.18%||#3 of 16|
|Sundaram Balanced Advantage Fund||1595 Cr.||+10.1%||#2 of 16|
|Baroda BNP Paribas balanced Advantage Fund||3426 Cr.||N.A.||#1 of 16|
|HSBC Balanced Advantage Fund||1812 Cr.||+9.14%||#4 of 16|
This article focuses on all the important aspects of the best balanced advantage mutual funds. Depending on the circumstances, including both personal conditions as well as market trends, you can consider investing in this single platform and enjoy the benefits of a diversified platform.
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