Balanced advantage funds are a new breed of mutual fund category that show a degree of variance from the balanced funds category. Simply stating they in view of the market valuation, shift the investor's corpus from equity to debt in conditions when the markets are on the peak and viceversa.
These are by some of the AMCs also referred as dynamic asset allocation fund category.
Balanced funds share a wide dissimilarity with Balanced advantage funds
After the recent re-classification and rationalization by SEBI, balanced funds are more popularly being referred as aggressive hybrid funs with overall exposure of between 65-80% into equity and the remaining in debt.
While this is the case with balanced funds, for the other balanced advantage funds, the corpus is distributed between equity and arbitrage component in the mix as 33% each so that the gross exposure into equity remains at 65% Equity arbitrage opportunities have characteristics of debt but it has its tax treatment is like equity.
Thus as a whole, balanced advantage funds turn out to be less volatile in comparison and are relatively safer. So, hence the returns obtained on these funds are comparatively lower.
Working of balanced advantage funds
Various valuation measures are taken to understand the market rhythm such that if it is on the higher or lower side and depending on it, equity exposure in the fund is reduced or increased to reduce volatility for the fund.
Suitable for retired investors who can take risk exposure but with low volatility
With limited downside, it is being deemed a suitable bet for retired individuals, who now are even aiming at riskier options to gain a bit higher in return. Decent returns at par with the expectation of these retired folks can be get with controlled risk.
Return from the fund category can be higher by 2-3% points than FD returns over a longer tenure.
Also, as per data available this fund category has provided positive returns even when the markets traded flat.
Positives with the fund categoryYou can take exposure in the fund at anytime regardless of the market dynamics as the fund internally times the market and correct the exposure to equity or debt as and when needed using the different metrics.
Also, for those who want to take a safer call and still want to earn a higher return, you can initially take a dig in this fund type and thereafter with STP route divert your funds in a pure equity fund category.
Notably for still others, those of you who expect far better returns than specified above and can afford higher volatility, this shall be not the suitable choice.