Balanced Advantage Funds are equity mutual fund schemes that employ a dynamic asset allocation method. Depending on equity values, such funds can expand their stock exposure to around 80 percent, with a minimum of 30 percent.
The remainder is put into debt securities. A Balanced Advantage Fund could be a suitable pick when market values are not cheap and key indexes are trading at all-time highs.
These funds help investors make the most of a full market cycle by reducing the downside when markets decline.
BAFs could be worth the investment for present equity mutual fund scheme investors or new investors who are concerned about present market levels but do not want to miss out on any additional rise in stocks.
Before you invest in BAF, here are five things you should know about them.
A Balanced Advantage Fund is not bound by the restrictions of a pure balanced fund, which must invest 65-70 percent of its assets in equities and the rest in debt. BAFs can adjust their asset allocation dynamically based on the daily equity valuation.
With the ability to allocate as much as 80% of their assets to equity and as little as 30% to debt, BAFs can substantially reduce or increase their debt and equity exposure depending on market conditions.
Consistent investment Growth
BAF returns are significantly more stable than pure equity fund returns since they can decrease the downside in investment valuation during times of market fall. This alleviates investors’ concerns and aids in the wealth generation process.
Handles Market Volatility
Markets are prone to swings. Investors are frightened of a volatile market, and they frequently make mistakes as a result. Most investors are unable to buy low and sell high, which is the truth. This prevents them from taking advantage of market instability. BAFs, on the other hand, leverage market volatility to their advantage to build wealth.
Strategy for Valuation
In contrast to the common practice of valuing stocks on a price-to-earnings (P/E) basis, BAFs use a price-to-book (P/B) valuation model for selecting stocks. According to financial analysts, the P/B approach is less volatile than the P/E strategy.
BAFs, like any other equity mutual fund, have diverse portfolios that include large- and mid-cap firms. These funds tend to have the stability of large and established corporations while still giving the huge growth potential of mid-sized enterprises due to their stock composition.
Concentration risks are mitigated by a diverse investment portfolio, which helps investors get a risk-adjusted return.
Existing investors may wish to consider putting their assets in BAFs to avoid a market jerk. BAFs can be purchased in SIP, lump-sum, or a combination of both modes by investors who are waiting for a market correction.