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Did your balanced advantage fund protect you from volatility last year?

BAFs may be marketed as an antidote to volatility (while still making money), but don’t judge them on the basis of just one year’s performance.

January 24, 2023 / 09:10 AM IST

In the year of 2022, the S&P BSE Sensex touched a low of 51,360 and a high of 63,284, and delivered just 4 percent returns in the calendar year. How do you make money amid such volatility? Balanced advantage funds were touted as one of the solutions.

These funds invest across equity and debt markets, but toggle between the two depending on the valuations. The beauty of Balanced Advantage funds (BAF) or dynamic asset allocation funds as they also called, is that they give you a tax advantage as the net exposure in equities is at least 65 percent. The raw equity exposure could go down to as low as 30 percent (if fund managers believe that equity markets are over-valued), but they use derivatives to bring up the equity exposure to qualify as an equity fund, from a tax point of view.

Did BAFs deliver?

Short-term returns can show a big divergence like they did in 2022. Short-term returns can show a big divergence like they did in 2022.