Equity markets are very volatile and not all investors can bear the volatility of equity market. This is one of the reasons why balanced advantage funds (BAFs) have gained popularity. As it offers combination of equity and debt. Return of equity markets and security of debt market a balanced risk.
Market circumstances determine whether to invest in equities or debt. Since most investors have debt instruments when share prices are very high, they don’t see a significant drop in invested capital. Portfolio managers are likely to have invested more in stocks when the market was low, so investors benefit when the market recovers.
Advantages investing in Balanced Fund
The potential to generate steady returns.
To combat the volatility of equity markets, investors benefit from a debt shield. As a result, returns from balanced advantage funds could be steadier than returns from equity-oriented funds.
Balanced funds lower the potential losses by balancing exposure to debt and equity. When the equity market becomes dangerous, fund manager chooses to lower your exposure by taking some gains and investing in debt instruments.
Depending how much asset allocation, the funds might be taxed on debt or equity funds. Most funds, however, maintain equity exposure to stock derivatives in order to leverage the equity tax treatment. As tax on long term equity over 1 lakh of profit is tax @10% and bonds @20%.
Disadvantages investing in Balanced Fund
Lower returns than Equity-oriented funds
Due to the fact that they include a portion of debt funds, balanced funds tend to underperform equity mutual funds during bull markets. Which are subject to lower returns.
As the fund managers constantly have to switch from equity to debt and debt to equity depending on the market, a lot of research and engagement is involved in order to optimize returns, the fund fee paid by balance funds is comparably higher than other funds.
Top Balanced Advantage Mutual Funds to Invest in 2022
|Fund category name||Asset Under Management (AUM)||1 Year CAGR (%)||3 Year CAGR (%)||Present CAGR till June 2022 (%)|
|HDFC BALANCED ADVANTAGE||51249.875 Cr||19.3%||18.4%||18.1%|
|ADITYA BIRLA BALANCED ADVANTAGE||6859.895 Cr||5.9%||11.9%||–|
|TATA BALANCED ADVATAGE||6299.739 Cr||7.5%||13.1%||12.2%|
|ICICI BALANCED ADVATAGE||44618.189 Cr||8.7%||12.1%||11%|
|KOTAK BALANCED ADVATAGE||14661.844 Cr||5.2%||10.7%||10%|
WHO INVEST IN BALANCED ADVANTAGE FUND
Only if you have a time horizon of at least 3 years you should consider investing in balanced advantage funds.
If one wants to avoid timing the stock market.
One who wants their rebalancing to be done by the experts.
One who cannot afford to bear the risk of equity market.