Do you want to stay ahead of market volatility? Are you looking for an investment to survive the ups and downs of the stock market? You may consider investing in balanced advantage funds, also called dynamic asset allocation funds. It invests most of the assets in a mix of stocks and fixed income securities. The fund manager shifts between equity and debt depending on the market conditions. What makes balanced advantage funds the right option during market turbulence?
What are balanced advantage funds?
Balanced advantage funds are a class of hybrid funds that invest in equity and fixed-income securities without any minimum exposure limits. It adjusts the asset allocation depending on the market conditions.
For example, the fund manager reduces debt exposure and increases equity allocation when stock markets are down. It increases returns from balanced advantage funds when the stock markets bounce back.
You have the fund manager reducing equity exposure and increasing allocation to debt instruments when stock markets are high. It protects the gains made by the balanced advantage funds when stock markets decline.
What makes balanced advantage funds the right option during market turbulence?
You have balanced advantage funds as a dynamically managed investment. It increases equity exposure to as high as 80% to take advantage of undervalued stock markets. You will find balanced advantage funds generating significant returns when the stock markets bounce back.
You also have balanced advantage funds reducing equity exposure to as low as 30% when the stock markets are overvalued. It protects gains of the fund even if the stock markets crash after some time.
You may consider balanced advantage funds as the right option during market turbulence as it’s a multi-dimensional investment. It functions as a hybrid mutual fund scheme when stock markets are overvalued by reducing equity exposure and increasing debt allocation, thereby offering protection against volatility. Moreover, these funds take advantage of undervalued stock markets by increasing equity exposure to around 80%, effectively functioning as an equity fund.
Balanced advantage funds can perform well even when stock markets are flat. It has an arbitrage component that takes advantage of the price difference of securities in different markets to generate returns. Moreover, balanced advantage funds have a dynamic asset allocation which helps you avoid timing the stock market.
Balanced advantage funds manage stock market ups and downs by dynamically adjusting the allocation towards equity or debt. It can generate higher returns when stock markets move upwards and protect the gains made, even if stock markets fall. You may invest in balanced advantage funds to stay ahead of market volatility in the long run.
Why invest in balanced advantage funds?
Balanced advantage funds have the potential to offer inflation-beating returns over some time. It is an excellent investment to achieve long term financial goals such as retirement planning. Moreover, you may invest in balanced advantage funds to enjoy tax-efficient returns.
Balanced advantage funds are taxed as equity-oriented investments. You have long term capital gains or LTCG above Rs 1 lakh per financial year taxed at 10%. It offers tax-efficient returns as compared to debt mutual funds.
Balanced advantage funds offer you risk-adjusted returns. It is a suitable investment for better downside protection in a volatile stock market. However, you must invest in balanced advantage funds only if you have a time horizon of over five years. Moreover, you may invest in these funds if it’s your first time in the stock market. The dynamic asset allocation ensures the rebalancing of your portfolio irrespective of the market conditions.
You may invest in balanced advantage funds to achieve long-term financial goals based on your risk tolerance. However, you must check the portfolio quality and the asset allocation strategy of the fund manager. You may invest in a balanced advantage fund that has performed well against its benchmark over some time. In a nutshell, balanced advantage funds offer automatic asset allocation and can perform in any market condition.
For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in
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