Balanced Advantage Fund: A Must Have Product To Meet Evolving Market Situations

Mutual Funds come in different categories to meet the varying needs of different set of investors. However, not every Mutual fund category suits everyone. Mutual Fund Schemes are not investment instruments with guaranteed returns. Investment risks such as trading volume, settlement risk, liquidity risk, default risk, and potential principle loss are present when purchasing mutual fund units.

The performance of Mutual Funds changes with the market volatility. As a result, it becomes important to understand which Mutual Fund category you should invest in so that the market volatility doesn't impact your investments.

Balanced Advantage Fund: It's dynamic nature provides great flexibility

The best way to avoid market volatility is to invest in both Debt & Equity. Balanced Advantage Fund invests in a mix of high quality debt and with substantial exposure to equity as well.

An individual investor should have a combination of equities and debt investments in his mutual fund portfolio and a single product that meets both, is the Balanced Advantage Fund. Risk and volatility is significantly lower in Balanced Advantage Funds, because of their exposure to debt. These funds can also take advantage of dynamic market movements.

Take the current situation where interest rates are rising. A Balanced Advantage Fund can book profits in equities and take advantage of rising interest rates by parking more money into debt. Similarly, when interest rates fall or equities fall, it can move money to equities from debt.

Returns from Balanced Advantage Funds may therefore be more consistent than returns from equity-oriented funds.
Balance Advantage Funds choose their stock exposure based on internal or important market ratios. For instance, when the market is high or values are stretched, the funds invest less in equities and when equities are offered at enticing prices, the funds invest more in equity. They juggle equity exposure for investors.

The fund management adjusts the portfolio between equities and debt based on market conditions using a process-driven strategy known as an asset allocation model. As a result, the Balanced Advantage Fund category is able to offer a more robust long-term mix of returns, surpassing inflation while also producing a significantly greater return than a typical debt funds, because of their exposure to equities.

Who should invest in a Balanced Advantage Fund?

Balanced Advantage Funds can devote up to 80% of their assets to equity and only 30% to debt, therefore depending on the state of the market, they can significantly alter or increase their allocation to debt and equity.

An investor, who wants to eliminate too much risk of full equity exposure, and who wants to get much better returns than debt funds, should choose a Balanced Advantage Fund. For an investor, who wants to take the middle ground, this is a good investment.

Conclusion

There can be no safe mutual fund scheme which involves equity investments. Hence, instability is unavoidable. Decide whether you can handle the risk of stock investment before investing in Balanced Advantage Funds. Additionally, only invest if you have a minimum investment horizon of five years or more.

Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.