Nippon India Balanced Advantage Fund: Fund Review


Nippon India Balanced Advantage Fund is one of the top programs in Dynamic Asset Allocation or Balanced Available Advantage.

Balanced Advantage Funds or BAFs are ideal for ‘very aggressive investors’ who are trying to strike a balance between growth and stability.

Assets do not show correlated movements throughout the market cycle. Asset prices fluctuate around their average but eventually converge. During the last decade (2011-2020), the average annual return on BSE Sensex production was above 10%, but it was less than 10% in 10 years (maximum: 29.9% in 2014, minus 24.7% in 2011). This is a testament to the non-linear nature of asset prices.

 Experiential studies have shown that 91.50% of portfolio performance is related to asset allocation. Therefore, it is essential to rotate the assets according to the market cycles. Rotation minimizes harmful risks when increasing the probability of alpha or returns above the benchmark. Thus, when equity valuations are seen to be prolonged, they cut off their equity exposures and vice versa. Human biases that do not have a rule-based quantitative model create triggers for portfolio recalibration.

The fund’s direct plan has a 5-star rating and the standard plan has a 4-star rating. Morningstar’s star ratings are based on the fund’s risk-adjusted returns compared to other funds in the same category.

A portfolio is a combination of equity and debt assets. The mixture is determined by a quantum model that avoids behavioral biases. The valuation is determined by analyzing the forward price-earnings. The debt segment is based on the maturity of the slope of the yield curve.

Depending on the fund’s mandate, the unheaded equity portfolio can range from 30% to 85%. In addition, it can protect a portion of the portfolio through derivatives to reduce risk or keep the equity exposure above 65%, which qualifies them for equity tax.

Although there is room for investment in midcaps, the fund is moving to larger caps. The top three sectors of the portfolio are economics (15.11%), technology (6.31%), and FMCG (4.79%) (November 2021 data, source: value research).

The portfolio debt has a revised term of 1.93 years. More precisely, it measures the change in bond price due to a 100-basis point or 1% change in the interest rate. Its portfolio is rated AAA. The three largest debt in the portfolio: 8.35% G-Sec2022 (2.42%), 5.22% G-Sec2025 (2.36%) and 7.16% G-Sec2023 (1.47%) (data November 2021, source: Value Research).

Asset allocation is important to overcome market volatility. Imagine a situation where an investor loses 50% of his investment capital. To make up for the 50% loss, the assets need to be increased by 100%. Limiting risk increases long-term wealth. Asset allocation is a powerful tool for mitigating risks.

Nippon India Balanced Advantage Fund is expected to navigate the market guidance relatively smoothly, with Manish Ganwani matching the quality by combining a robust asset allocation algorithm.

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