Balanced advantage fund (BAFs) is an investment that tries to give investors the “advantage” of superior investment timing while still keeping a “balance” between risk and rewards. A balanced advantage fund, often referred to as a dynamic asset allocation fund is a subset of hybrid mutual funds in which the asset allocation between equity and debt is managed or adjusted manner conforming with the market condition.
In general, mutual funds invest in both debt and equity to a certain extent. Whether the funds are predominantly equity- or debt-oriented influences the ratio of debt to equity. They keep the allocation constant once investments have been made.
Balanced advantage funds, like all mutual funds, invest a portion of their capital in debt and a component in stocks. But when equity prices get too high, they immediately move from equity to debt. These funds also have the “benefit” of entering and leaving the equity market at more advantageous times.
Below mentioned are a few of the things to keep in mind as you begin to invest in BAFs.
- Get started in a balanced advantage fund in accordance with your risk profile and the financial goals you have set for yourself.
- Take the time to carefully read the mutual fund’s paperwork and become familiar with the approach they plan to take while investing their corpus.
- Examine the past results of the asset management firm and the profile of the fund manager who will oversee the fund to understand the expertise.
- If you want capital appreciation as well as regular returns, aim to stay invested for 3-5 years.
- Always keep an eye on the investments you have made with your hard-earned money.
Factors to consider while investing in Balanced Advantage Fund
- Dynamic Distribution
Balanced advantage fund has a maximum stock exposure of 80% and a minimum stock exposure of 30%, depending on equity prices. The remainder is allocated to debt instruments. This enables the BAF to provide a superior mix of returns over the long run and hence outperform both the general debt or balanced fund as well as inflation.
- Stable Investment Growth
As BAFs can reduce the loss in investment value during market downs, their returns are much more stable than those of pure stock funds. This encourages wealth generation and helps ease investor concerns.
- Handles Market Volatility
The fund’s built-in dynamic asset allocation feature allows the strategy to handle volatility successfully by buying equities at low valuations and selling them at rising valuations.
- Valuation Method
BAFs gauge how much a firm is worth in the market compared to its stated book value. Financial analysts note that this strategy is less volatile than any other. BAFs are slightly more prepared with this method of figuring out the real value of the companies.
The portfolios of BAFs are diversified and include both large- and mid-cap equities. These funds enjoy the stability of giant and well-established companies and possess immense potential for the development of small to mid-enterprises due to the presence of a diverse stock mix.
Balanced Advantage Fund is the finest type of hybrid mutual fund for new risk-averse investors ready to store their money for at least three to five years. They can be a useful addition to a person’s retirement savings in addition to offering the chance to create consistent and regular passive income.
Investors should carefully examine their tolerance for risk, financial objectives, and liabilities before selecting a balanced advantage fund. Investors should, if necessary, seek the assistance of financial professionals to help them understand the possibilities more completely.