What are balanced advantage funds?

The investment goal of an investor should be so defined that he/she doesn’t have to think twice before investing in a certain type of investment scheme. This is why financial advisors suggest individuals to start financial planning so that they can determine their short term and long term goals. We as individuals tend to remain emotionally connected to our financial investments. That is bound to happen because life's goals, motives and achievements depend on the performance of these financial schemes. This is exactly why one should be good at financial planning. Not only does it help you set realistic goals, it also allows investors to get a fair idea about how much money they have in the form of principal amount in order to start investing.

Some people live under the false presumption that savings are sufficient to help them sustain financially in the long run. But the truth is, something like inflation can easily eat up your savings, leaving you bankrupt in future. One of the primary long-term goals of investors should always be retirement planning.

Equity investments are volatile in nature. They are quite unpredictable and if you do not invest according to your risk appetite, there is a chance of your portfolio incurring higher losses. However, if you want to cushion your equity investments by adding a debt element to it, you can consider investing in balanced advantage funds.


What are balanced advantage funds?
SEBI, the regulator of mutual funds here in India, defines a balanced advantage fund as ‘an open ended fund that must invest in equity / debt that is managed dynamically’. Investors should not confuse a balanced advantage fund with a balanced fund. Although both fall under the hybrid fund category, a balanced hybrid fund (as per SEBI guidelines) must invest between 40 percent and 60 percent of the total assets in equity and equity related instruments of total assets, whereas 40 percent to 60 percent of total assets in debt instruments. However, in a balanced advantage fund, the fund manager has to take the existing market conditions into consideration and then dynamically allocate assets to equity and debt in accordance with the scheme’s investment objective.

What are the benefits of investing in balanced advantage funds?
Long term capital appreciation: Since this fund adjusts its asset allocation dynamically depending on market conditions, there is no point of investing in a balanced advantage fund for the short term. If investors really want to see the potential of this fund, they might have to remain invested with a long term investment horizon. Balanced advantage funds do invest a certain portion of their total assets in equity and equity related instruments. And you may know of the fact that equity instruments only start showing their true potential when one remains invested for the long run. Hence, if you are someone who seeks long term capital appreciation, you can consider investing in a balanced advantage fund.

Diversification of portfolio: This is a unique type of hybrid fund which is why adding balanced advantage to your portfolio will not be a bad idea at all. The fund managers have the liberty of dynamically allocating assets and this flexibility of shifting assets depending on market vagaries may actually help investors. Thus, anyone who wishes to invest in a fund that balances between equity and debt dynamically can consider adding this hybrid fund to their portfolio.

Things to consider before investing in balanced advantage fund
Risk appetite: Since this is a hybrid fund, it invests in both equity and debt. Equity investments are constantly exposed to the market's volatile nature. In underperforming markets, your portfolio may have to even bear losses. Hence, it is better that investors determine their risk appetite before investing in a balanced advantage fund. They should only consider investing if their risk appetite is able to tolerate the risk profile of the scheme.

Investment objective: Make sure that the investment objective of the scheme synchronizes with that of yours. Else there is no point in investing. Investors should always make sure that they invest in only those funds that hold the potential to help them get closer to their ultimate financial goal.

SIP or Lump sum: There are multiple ways to invest in balanced advantage funds. You can either make a one time payment through a lump sum investment or you can opt for a SIP. A systematic investment plan (SIP) allows investors to invest in small quantities. One does not need to have a large surplus to invest in mutual funds through SIP. They can choose an amount they are comfortable with, unless this amount fits the minimum investment requirement. Every month on a fixed date, a predetermined amount will be debited from the investor’s savings account and electronically transferred to the balanced advantage fund. There are no lock-in periods or fixed tenures with SIP investments. This way, investors can continue investing till their investment objective is achieved.

Before narrowing down to any investment decision, investors should always keep their investment objective, investment horizon and risk appetite aligned with their investments. This might help them in the long run and help them get closer to achieving their financial goal.

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

This is an investor education and awareness initiative by Axis Mutual Fund. Investors have to complete one-time KYC process. Visit www.axismf.com or contact us on customerservice@axismf.com for more information. Investors should deal only with registered Mutual Funds, details of which are available on www.sebi.gov.in - Intermediaries/Market Infrastructure Institutions section. For any grievance redressal, investors can call us on 1800 221 322 or write us at customerservice@axismf.com or register complaint on SEBI Scores portal at https://scores.gov.in