A balanced advantage fund is a hybrid fund that makes an investment in both equity and debt. But unlike conventional hybrid funds, which hold debt and equity allocations within a defined and specific limit, balanced advantage funds have zero such constraints and modify your allocations flexibly. Hence, these funds are also known as dynamic asset allocation funds as they can adapt to dynamic market conditions. In such funds, when the value of equity rises, the fund manager tends to make investment strategy adjustments more toward debt and when the stock prices fall, the allocation is more in stocks.
So, the fund managers use a process-driven measure, often called the asset allocation model, for adjusting the portfolio between debt and equity depending on market circumstances. Owing to this reason, when the price of the share rises, you as an investor do not need to consider a considerable drop in your invested capital as most of your stake would be only in debt. Likewise, you can benefit considerably when the market recoups as the portfolio manager would have invested substantially in stocks when prices were low.
In case you are looking to invest in a balanced advantage fund, then you might even opt for an SIP or a systematic investment plan. This option is offered by fund houses and permits you to invest a specific amount of money periodically in any mutual fund scheme. By investing in a mutual fund through the SIP route, you can benefit from the rupee-cost averaging feature, which permits you to average out your investment expenses over time.
Besides these benefits, by opting for the SIP mode, you can avail the benefit of compounding with zero need to monitor the market as the investments in your selected scheme automatically take place regardless of the market movement.
What are the benefits of investing in a balanced advantage fund through the SIP route?
- Possibility of earning a stable return
A balanced advantage fund invests in both equity and debt dynamically. Thus, you as an investor get the debt cushion to battle against equity market volatilities. Consequently, returns earned by balanced funds might be more stable than those generated by equity mutual funds.
- Relatively reduced risk
Besides investing in equities, balanced funds invest in debt securities depending on market conditions, which might assist to reduce the portfolio risk. As the fund portfolio has lower exposure to the volatility of equity markets, the risk of capital erosion is considerably lower, which makes balanced advantage funds a good bet if your risk tolerance level is moderate. However, at the same time, having equity exposure in your portfolio might assist you in wealth creation.
- Dynamic asset allocation strategy
Fund managers of balanced advantage funds can follow a dynamic asset allocation strategy. When the markets are bullish during the economic growth phases, fund managers might transfer a few investments to equity from debt instruments. In contrast, during an economic downturn, fund managers might transfer a few investments to debt from equity instruments. Thus, a balanced advantage fund assists to lower the risk and aim for a better return.
- Need less monitoring
All experts recommend holding a diversified investment by investing in an excellent mix of bonds, stocks, and other investments. However, monitoring as well as tracking the performance of distinct kinds of securities may be a cumbersome and time-consuming process. A balanced fund is a good solution for diversifying your investment portfolio through distinct kinds of bonds and securities with minimum effort and time.
Ending note
Investing in a balanced advantage fund through an SIP might assist you as an investor to meet the financial goals at considerably lower risk as compared to equity mutual funds. These funds are even known as all-season funds as they follow a dynamic allocation strategy.
