Finance

​What makes a balanced advantage fund an all-season fund?

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Balanced advantage funds (BAFs) are hybrid funds that invest in both asset classes, debt and equity, in a dynamic manner. Portfolios of such funds are periodically rebalanced depending on the equity market condition. This allows the fund to tap high market returns and simultaneously gain security benefits by investing in debt instruments. Note that the reallocation feature in BAF is in-built and is designed to generate risk-adjusted returns. Discussed here in detail are crucial points in favour of BAFs that make it an all-season fund.

  • Potential to earn stable returns

A BAF, as mentioned above, invests in equity and debt instruments dynamically. Owing to the dynamic approach, you get the debt cushion that battles against equity market volatilities to generate a stable return. Note that the returns generated in BAFs are more stable as compared to any equity fund returns.

  • Lower risk

In BAF, a portion of corpus investment in debt instrumentsassists to reduce the overall investment portfolio risk. As the investment portfolio witness lesser exposure to equity marketvolatility, the capital erosion risk is low, thus making BAFs an excellent option if your risk appetite level is moderate. Note that, simultaneously, exposure of the fund towards equity instruments may allow you to generate higher wealth too.

  • Dynamic asset allocation

The core idea of a balanced advantage fund is to invest a considerable corpus in equities when markets record an irrational bottom level and lower exposure to equities when the market records high market levels. In the case you are looking for a return similar to equity but want to lower the downside risk over the short run, then Balanced Advantage Fund for you may be an appropriate fit.

  • Minimal monitoring is required

You can create a diversified market investment portfolio by individually investing in a mix of bonds, stocks, and various instruments. However, tracking and monitoring the performance of every security in your portfolio may be a cumbersome and time-consuming process. A BAF is a prudent solution for you if you want to diversify your investment portfolio across distinct equity fund, bonds, and securities. Instead of keeping a check on, say, eight to nine distinct investment instruments, you just need to monitor one investment as long as it is in alignment with your risk tolerance level and investment objective.

  • Tax benefits

A BAF is usually termed as equity-linked funds as such funds usually focus to create an equity-concentrated fund to help you earn higher returns and get equity tax benefits. Long-term capital gains in an equity concentrated BAF of up to Rs 1 lakh aretax-free while a capital gain of over Rs 1 lakh is taxed at 10 per cent. Short-term capital gains in an equity concentrated BAF are taxed at 15 per cent. So, to get tax benefits on a balanced advantage fund, ensure to remain invested for the long term.

Conclusion

A BAF is a prudent investment option that may allow you to attain your financial goals within the deadline at a relatively reduced risk than equity mutual funds. Owing to the dynamic asset allocation feature, well-managed asset securities in this fund hold the potential to deliver stable returns during market volatility and improve your overall investing experience.

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