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BAFs show investors the middle path is always the best and the safest

There is a good reason why BAFs compare favourably with large cap funds

January 30, 2021 / 12:36 PM IST

Balanced Advantage Funds (BAFs) are getting the highest gross sales in all categories of mutual fund (MF) products today. It is the best bet on how to grow money in rising markets and protect in falling markets.

At a recent high-profile webinar organised by Edelweiss MF and CNBV-TV18, two leading mutual fund experts said BAFs work for a large combination of investors and have become an important part of their core allocation.


The webinar was addressed by Radhika Gupta, MD and CEO Edelweiss AMC and Santosh Joseph, CEO and Founder, Germinate Investor Services.

The speakers agreed that BAFs achieve that blend of meaningful upside and downside protection. Not being an equity product, it will underperform equities, which it is meant to, but the fact is that it is not a fixed deposit product either.


The takeaways from this high-profile webinar were many. Consider the following:

** What distinguishes BAF from the others in the hybrid category is the older combination of equity and debt, with a ratio that keeps changing.

** That ratio could be 30% equity and 70% debt or 80% debt and 20% equity. The change is based on automated factors, not raw emotions.

** BAFs present a great combination of fixed income and equity, managed, and packaged well to take care of the benefits of either an all-time high rally or for a beginner looking to invest.

** They can also provide a regular income. Most funds have a regular systematic withdrawal plan (SWP) facility. Accumulate a corpus for 2-3 years and start a monthly or quarterly SWP of 6-8 to 6-9%.


According to Ms Gupta, a look at the last couple of years of returns of BAF category would reveal that it compares well with large cap funds. How is it possible when BAFs on an average have a 50-60% exposure and large cap funds have 100% equity exposure? It is because compounding has taken place, she said.

In Mr Joseph’s estimate, for someone who is really worried about timing the market, there is nothing like a good time or a bad time. Every time is a good time so long as the BAF model is working for you, he points out.

The webinar was conducted by Sumaira Abidi of CNBC-TV18.

Watch the webinar here:

This is a partnered post.
Tags: #Featured
first published: Jan 30, 2021 12:36 pm
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