Balanced advantage funds are flavour of the month

• Follow

At a time when the markets have scaled record high levels and are looking for next directions, investors have developed a new liking for balanced advantage funds, it seems. While the new fund offer of SBI Balanced Advantage Fund has raised Rs 15,000 crore in September, Axis MF has repositioned its Dynamic Equity Funds as a balanced advantage fund. According to a news report, assets under management have increased 62% to Rs 1.41 lakh crore.

Balanced advantage funds attract investors who wish to enjoy the higher return potential of equity investment but want to limit losses when markets decline. They adjust the equity and debt levels based on market valuations.

According to a report by the Economic Times, financial planners are recommending balanced advantage funds as they reduce volatility and risk.

The report quoted Amol Joshi, founder, Plan Rupee, as saying that investors are not certain about the market direction and are moving to balanced advantage funds.

He further cautions that balanced advantage funds are not without risks.

Different fund houses have different fund allocation strategies. There are varied strategies and equity allocation can vary from 30% to 75%, the report quoted Vidya Bala, founding partner, Prime Investor, as saying.

According to the report, HDFC Balanced Advantage Fund, with assets of ₹42,000 crore, has an equity exposure of up to 75%.

ICICI Balanced Advantage, the second-largest, has an unhedged equity exposure of 37.2%, the Economic Times said. Many funds in this category allocate anything between 30% and 55%.

Experts cautioned that balanced advantage funds are not like safe havens as returns were negative over a one-year period when markets declined.

Joshi in this report recommends a mix of ICICI Prudential Balanced Advantage Fund for its long-standing track record and Edelweiss Balanced Advantage Fund for its pro-cyclical strategy.

“Investors using this category should come with a time frame of 2 years and use it to earn equity-like returns with equity taxation,” Bala is quoted as saying in the Economic Times report.