The recurring volatility in the market since the beginning of 2022 has put the focus back on balanced advantage funds.
As opposed to many investors who always split their money and minds between equities and debt for returns and stability, people are now securing their investments by putting their money in balanced advantage funds. These are also called dynamic asset allocation funds considering how the money is invested in equity, debt and arbitrage components. There is no restriction on asset allocation, which means that the fund managers can easily switch between the investments depending on the market’s direction.
Why balanced advantage funds?
In a ‘bullish’ market when the equity valuations are at an all-time high, fund managers tend to increase their exposure to equity instruments. A greater chunk of the money is invested in debt to curb the market volatility during its bear run. There is an in-built strategy wherein the fund managers can easily allocate assets towards equities and debt. Understanding how these funds work becomes easy as investors look into their features and park their earnings accordingly.
- To start with, most balanced advantage funds park 65-80 per cent of the funds received in equity instruments. However, this allocation is subject to change depending on the in-house strategy of every fund house.
- Fund managers decide on money allocations based on key indices and how they predict stock valuations in near future. They may invest in equity instruments whose values are slated to go up in sync with the market movements but may quickly revert to debt fund instruments like fixed money market instruments in anticipation of a possible crash, thus, saving their investors from suffering major setbacks in their portfolios.
- The name of this fund derives from the dynamic allocation and reallocation of the funds as per the market movements. The possibility of availing maximum returns through equity and arbitrage instruments while also shielding it through debt market instruments underscore the security of investments made in these funds.
Best performing balanced advantage funds
Currently, there are many fund houses that have set up balanced advantage funds. This means that you have a lot of options to choose from. Based on average returns earned over the past years, HDFC Balanced Advantage Fund - Direct Plan-Growth tops the list with a five-year CAGR of 12.93 per cent. Edelweiss Balanced Advantage Fund - Direct Plan-Growth ranks second with a five-year CAGR of 12.84 per cent. ICICI Prudential Balanced Advantage Fund - Direct Plan-Growth comes third with a five-year CAGR of 11.05 per cent.
|Name of the fund
Three-year returns (in %)
Five-year returns (in %)
|HDFC Balanced Advantage Fund - Direct Plan-Growth
|Edelweiss Balanced Advantage Fund - Direct Plan-Growth
|ICICI Prudential Balanced Advantage Fund - Direct Plan-Growth
|IDFC Balanced Advantage Fund - Direct Plan-Growth