When it comes to investing, each investor has a different approach based on their goals, risk appetite, time horizon, income, and other circumstances. While some investors focus on stocks, others might prefer bonds or more speculative investments. Now, wherever you choose to invest, keep in mind that it is advisable to diversify your portfolio across different asset classes. This is where balanced advantage funds (BAF) come in.
With a balanced advantage fund, you can get the best of both worlds – exposure to growth stocks while hedging against market volatility. Here is a detailed look at the meaning of balanced advantage fund a long with 5 important reasons why you should also invest in these funds:
What is balanced advantage mutual fund?
Balanced advantage funds (BAFs), also known as dynamic asset allocation funds, are hybrid mutual funds that seek to capitalise on market opportunities by dynamically allocating assets between debt and equity. Unlike some hybrid funds, which maintain a static allocation between the two asset classes within certain limits, BAFs have no such restrictions. This flexibility allows fund managers to adjust the asset mix quickly in response to changing market conditions. Typically, when valuations are high, the fund manager may tilt the allocation more towards debt; when prices turn cheap, the allocation would increase to equities.
Five reasons to choose balanced advantage funds
Balanced advantage funds have a dynamic allocation
Balanced advantage funds seek to offer investors a balance of returns by dynamically allocating assets based on daily market valuations. This means that BAFs can increase or decrease their exposure to equity and debt as market conditions change, which provides a crucial element of flexibility. BAFs typically have the freedom to invest up to 80% in equity, which gives them the potential to generate strong returns over the long term.
Deals with market volatility
Markets can be volatile. When investors make mistakes, it can deprive them of making the most of the market movements. That is where balanced advantage mutual funds can help. BAFs use market volatility as a tool to create wealth. These funds are designed to take advantage of market fluctuations by adjusting their asset allocations – buying stocks when they are undervalued and selling them at higher levels. This helps to effectively manage volatility while ensuring that investors get the best possible return on their investment.
These funds provide stability through debt
Investors often seek out investment vehicles that can provide stability during periods of economic uncertainty. And the benefits of balanced advantage funds become especially clear during a market downturn. When stock prices fall, the fund manager will reallocate assets to more conservative investments (bonds). This helps to protect your portfolio from significant losses and gives it time to recover when the market eventually rebounds.
They require less monitoring
Less monitoring is one of the major benefits of balanced funds and balanced advantage funds. These funds help you to diversify your portfolio across different types of assets through a single investment scheme. So, you do not have to monitor and track multiple investments separately. This saves you time and gives you the peace of mind that comes with entrusting your investments with a professional fund manager who takes care of the buying and selling of securities to maintain the desired asset allocation. Since you don’t have to track the performance of different securities, you can focus on other aspects of your financial planning.
Diversification at a lower cost
The fund manager, based on his/her expertise and knowledge, can include stable large-cap stocks, growth-oriented mid and small-cap stocks, and conventional debt instruments with low risk. This mix of assets can provide a more balanced and diversified approach to investing and can help to reduce overall portfolio risk.
From providing potential downside protection and limiting absolute losses during market downturns to having the potential for long-term capital appreciation, balance advantage funds can provide various advantages for those looking to invest in mutual fund that takes a more strategic approach.
However, as with any investment decision, it is important to consider your risk appetite, time horizon, financial goals, and liabilities before making a commitment. If needed, consult a financial advisor who can help you determine if the balanced advantage fund aligns with your investment objectives.