Learn Top 5 benefits to invest In Balanced Advantage Funds (BAFs)


The ability and willingness of a fund to switch from an asset class to another asset class which has a potential to outperform as per the fund managers discretion is crucial for long-term retirement planning. Balanced Advantage Funds popularly known as BAF, which invest in a mix of equity and debt have fared better over the three-year period than those who opted for pure equity mutual funds.

Balance, as the terms explains, is generally necessary in every part of life. Be it health, expenses or investments, the best advice is always to maintain a balance because it sets the ball rolling for a brighter future. It ensures that you secure high growth as an individual and chase bigger goals at a steady pace. Similarly, the Balanced Advantage Funds (BAF) allow you to get a better return per unit of risk that you’re taking in your exposures. This article explores the Balanced Advantage Funds and the reason of making it an all-season investment fund.

What is Balanced Advantage Funds?

Balanced Advantage Funds come under the dynamically-managed equity mutual fund scheme which typically alters their equity allocation between 30% and 80%, depending on market valuations and the price-earnings ratio. When valuations are high, they reduce their equity allocation; and when low, increase it. The Balanced Advantage Funds are expected to manage the portfolio in such a way so as to reduce the equity in the high valuation market and increase exposure when the market looks attractive.

As per recent data from Value Research- an average SIP return for the three-year period from the balanced advantage fund category was 3.78%. In comparison, large-cap funds have returned 3.48%, large and midcaps 2.69%, multicaps 3.05% and midcaps 2.2%. Investors in small-cap funds have, on average, lost 2.17%.

Why invest in Balanced Advantage Funds?

Balanced Advantage Funds offer a plethora of benefits over Pure Equity Funds. Here are a few of them:

Market correction has the least impact on BAFs returns

BAFs help investors navigate volatility. These funds are dynamically managed, equity levels based on a pre-decided model, thereby reducing volatility and leading to smoother investment experience.

May deliver stable returns for a long-term portfolio

The Balanced Advantage Fund holds both equity and debt, and shifts between them based on a model. It aims to generate capital gains primarily through dynamic management of equity allocation as per varying market conditions.

May provide stability and regular income through equity exposure

The Balanced Advantage Fund can be ideal as they can help you take advantage of upward moving equity markets, in a timely manner, through the equity investments in the fund.

Protect your portfolio from losses in downward moving equity markets

If you are an aggressive investor and would like to keep debt allocations lower, then a Balanced Advantage Fund can work well because it helps reduce portfolio volatility and plays a part of the role that debt does.

Eliminate the need to time the market

The Balanced Advantage Fund helps overcome emotional bias while dealing with equity markets and their uncertainty. Also, it offers a higher tax efficiency than asset allocation implemented by the investor himself.

In the journey of investing, where reducing losses is important, and staying invested critical, BAFs as a category are considered to be an all-season fund and a great ally for any investor.

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