To experience the benefits of a combination of debt and equity bonds, balanced advantage funds—also known as dynamic asset allocation funds—can also be looked at. This category of funds has been gaining momentum.
Belonging to the category of hybrid mutual fund schemes, balanced advantage funds use an asset allocation strategy that switches between equities and debt bonds depending on the volatility of the equity market. A decent inflation-adjusted long-term return can be expected from such funds, which remains more than a debt or balanced fund.
Balanced advantage funds are known to adopt various valuation indicators, including profit-to-equity (P/E) and profit-to-book (P/B) ratios, to deploy assets. A few fund managers also deploy multi-factor models, and some balanced advantage funds may use pro-cyclical dynamic asset allocation models. Pro-cyclical funds spike their equity allocation during the bull-run in markets and reduce it at the time of bear markets.
An investor in balanced advantage funds can look forward to stable returns as the fund managers adopt a trend-based asset allocation model to maximise or minimise exposure to equities and debt depending on the market volatility.
Ideally, balanced advantage funds needn’t be a tactical allocation alone. Such funds could be added to the core portfolio by an aggressive or conservative investor, a retired individual, or a beginner in the equity market.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.