5 Ways To Make The Best Of Your Balanced Advantage Fund

Nov 28, 2022

Guided by emotions, people usually underestimate how immune they are to market conditions. Most people buy stocks and mutual funds at high prices thinking the market will go even higher or sell their holdings too quickly or never at all. This often upsets investment goals when markets fluctuate due to global events as they currently are.

Balanced Advantage Funds are the best way to hedge your investment in the current economic scenario, thanks to their hybrid nature. If you still haven’t heard about them, here’s a quick introduction to Balanced Advantage Funds along with the best ways to make use of them.

What Are Balanced Advantage Funds?

Balanced Advantage Funds change their asset allocation, i.e. equity and fixed income allocations, dynamically according to market conditions. Typically, these funds reduce equity and increase fixed income allocations when there’s a bear market or equity valuations are high. They will increase equity and reduce fixed income allocations when markets are ripe for an upswing or when equity valuations are low. Since Balanced Advantage Funds follow a model based approach, behavioral biases in investing automatically get eliminated.

Now that you know why you need to invest in them, here’s how you can make the most of your Balanced Advantage Fund.

1 – Invest A Lumpsum Amount

It’s advisable to not ‘time’ the market as many people do thinking they’re financial gurus. Instead, a much better way to ensure success in Balanced Advantage Funds is to invest a lumpsum amount and let the fund manager do their thing. Since markets are dynamic, a lumpsum investment will allow your money to be spread in a much better way and help you get better returns than if you paid a SIP every month for example.

2 – Learn How It Differs From Balanced Funds

Before investing your money, it pays (no pun intended!) to know the difference between Balanced Funds and Balanced Advantage Funds since they sound almost similar. However, while the former have almost equal allocation (minimum 40% and maximum 60%) to debt and equity asset classes , the latter has no fixed guideline and comes with the flexibility to switch between both asset classes. This means that your investment is not stuck during important phases when markets turn bullish or bearish.

3 – Look For Growth And Investment

The very nature of Balanced Advantage Funds is to protect your investment in uncertain times and growth your wealth during bullish times. For someone who is impatient to grow at all costs or someone who is uncomfortable with exposure to equity, Balanced Advantage Funds offers a window into the other side so you can keep your head down and watch your investment grow at a steady pace rather than have it all wiped away during a bear run or miss the opportunity to jump in at the right time during a bull run. As an investor, you need to be comfortable with both these aspects whilst investing in Balanced Advantage Funds.

4 – Understand Your Valuation Strategy

Most market analysis is focused on valuing stocks on their price to earnings (P/E) basis, something that Balanced Advantage Funds turn around by looking at the price to book (P/B) value of stocks. This is advantageous as many financial experts say that P/B model is comparatively less volatile compared to P/E strategy. This is one of the hidden benefits of using Balanced Advantage Funds that you need to be aware of.

5 – Embrace Diversification

As an investor, you need to be comfortable with the idea of dynamic allocation as well as trust the fund managers’ choice of stocks. You will see over time that through various market cycles, the ability to invest across large-cap and mid-cap/ small-cap stocks offers the best risk-reward return on your investments. If you’re the type who panics easily during market swings, it would be prudent to invest in Balanced Advantage Funds and show faith over a long period of time to turn investment into wealth.

With all of these pointers to guide, it’s definitely easier to pick a good Balanced Advantage Fund. We’ve gone and done the legwork for you and would recommend Axis Mutual Fund’s Balanced Advantage Fund whose fund managers come with a combined experience of 40 years of managing funds and has outperformed the benchmark over a three-year period. You can invest in Axis Balanced Advantage Fund here.


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