Looking for more balance and less volatility? Balanced Advantage Funds may be just right for you.

Irrespective of the news cycles, geopolitical developments and the latest ups and downs of the market, as an investor, it is up to you to ride the wave of prosperity while also safeguarding against potential downturns. There aren't a lot of investment vehicles that can help you grow your investment and insulate against market volatility. One investment vehicle that comes close is Balanced Advantage Funds or BAFs. 

Enter Balanced Advantage Funds: Your Strategic Asset Allocation Tool

For investors, particularly those managing full-time jobs, timing the market can be a nerve-wracking endeavour. You don't have the luxury of monitoring market movements throughout the workday, and especially if you're a novice investor, making sense of all those numbers and all that news becomes even more daunting. This is why all the best investment advice talks about diversification - a strategy that balances both equity and debt is stronger on both counts: earnings and stability. 

Equity offers the growth potential that we all seek, but it also comes with higher risk and volatility. Debt offers the steadying influence that we need, but it also comes with lower returns and interest rate risk. How do we balance these two asset classes to achieve our financial goals?

This is where BAFs come in handy. A BAF is a type of hybrid fund that invests in both equity and debt instruments, and dynamically adjusts its allocation based on market conditions. A BAF can increase its equity exposure when the markets are bullish, minimising debt exposure, and reduce it when the markets are bearish, increasing debt exposure. This way, a BAF can capture the upside of both equity and debt, while minimising the downside of both.

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Dynamic Allocation Strategies: Navigating Market Extremes

BAFs employ dynamic allocation strategies that flex according to market conditions. These strategies account for various factors, such as market valuation, price-to-earnings ratio, price-to-book value ratio, dividend yield, interest rate movement, macroeconomic indicators, etc. They are designed to identify the fair value of the market, and compare it with the current value to understand if the market is over or undervalued. Based on the valuation, the BAF changes the amount of equity in its debt-equity mix. 

What are the benefits of BAFs for the retail investor

There are several advantages that BAFs bring to the retail investor. 

Hands-off investments: As with all mutual funds, there is no need to reflexively check your investment apps for market fluctuations. Leave it to the fund manager.

Combine with SIPs for even greater stability: When you use SIPs to invest in mutual funds, you're already creating a certain amount of stability by averaging out market highs and lows. When you invest in a BAF using SIPs, your investment leverages market movements, potentially growing when the market grows, or providing steady earnings when the markets are down.

Tax efficient investments: BAFs are treated as equity funds for taxation purposes. This means that they enjoy lower capital gains tax and no dividend distribution tax.

A diversified portfolio: Through one investment vehicle, you're adding two asset classes to your investment portfolio. Moreover, BAFs are also diversified across sectors and industries (with the exception of sectoral funds), giving your portfolio greater resilience. 

Conclusion

A BAF is a smart way to invest in any market scenario. It offers you the best of both equity and debt with its dynamic asset allocation, and can help you achieve your financial goals with lower risk and higher returns. 

Of course, the performance of a BAF relies heavily on the experience of the fund manager, and the philosophy of the company behind it. Therefore, it is important to do your research before choosing a BAF that suits your risk profile and investment horizon.

Learn more about how BAFs can help you make the most of your investment strategy here.

Disclaimer

One-time KYC (Know Your Customer) is mandatory to invest in mutual funds. You can complete your eKYC here: https://invest.sundarammutual.com/. Investors must deal with/invest in only SEBI Registered Mutual Funds. Details are available at www.sebi.gov.in. Complaint Redressal: Investors can reach us on 1860 425 7237 or write to us at customerservices@sundarammutual.com. For escalation, write to grievanceredressal@sundarammutual.com or lodge your grievance with SEBI through their SCORES (SEBI Complaint Redressal System) Portal at https://scores.gov.in. If you are still not satisfied with the redressal from SEBI SCORES, you can further initiate dispute resolution through the ODR Portal at https://smartodr.in/login.

An Investor Education initiative by Sundaram Mutual.
Mutual fund investments are subject to market risks, please read all scheme related documents carefully before investing.

Moneycontrol Journalists were not involved in the creation of the article.