The recent launch of the Canara Robeco Balanced Advantage Fund on July 12, 2024, has reignited interest surrounding balanced advantage funds (BAFs). Not that these funds were not in vogue; however, the bullish run of the stock market encouraged many investors to adopt an aggressive approach while opting for equity mutual funds for investment.
For those unfamiliar, these funds, also referred to as dynamic asset allocation funds, are a type of mutual fund aimed at striking a balance between risk and return. This is because BAFs allocate investments across both stocks (equity) and bonds (debt). This diversification aims to combine the growth potential of stocks with the stability provided by bonds.
In contrast to traditional hybrid funds that maintain a fixed asset allocation, BAFs modify their equity and debt ratio in response to market conditions. This clarifies why these funds may appeal to investors seeking exposure to the growth potential of stocks while maintaining comfort with lower associated risks. The dynamic asset allocation strategy is tailored for investors with a long-term investment horizon.
Below is a table showcasing top-performing BAFs along with their five-year and 10-year returns, providing valuable insights for long-term investors evaluating these funds for their investment portfolios.
Asset allocation of balanced advantage funds
Balanced advantage funds, also known as dynamic asset allocation funds, stand out because they do not maintain a fixed asset allocation. Unlike traditional balanced funds that typically keep a static equity-debt mix (often 50/50), BAFs automatically adjust these proportions based on prevailing market conditions. Here’s how BAFs manage asset allocation:
Investing in BAFs can significantly mitigate the impact of market volatility. By adjusting asset allocations, these funds aim to lower volatility relative to pure equity funds. This strategy helps stabilize the fund’s value, potentially minimizing fluctuations during market downturns. The equity allocation in these funds provides the opportunity for long-term capital appreciation. The fund manager’s expertise guides the determination of the optimal asset allocation in response to market conditions.
