Worried about capital erosion due to market volatility? These funds can preserve your wealth

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Covid-19 induced economic fallout and the collapsing healthcare system amid rising infections has led to a bloodbath on the Dalal Street. Since March 10, 2021, when India recorded over 20,000-fresh coronavirus cases, benchmark equity indices have plunged over 5% wiping off more than Rs 7.5 lakh crore of investors’ wealth.

In the given scenario, if you are worried about wealth erosion and are looking at reallocating your portfolio, you may consider balanced advantage funds better known as BAF or dynamic asset allocation funds:

Balanced advantage funds

Balanced advantage funds or dynamic asset allocation funds invest in a mix of stocks and FD-like instruments. However, they keep changing this allocation based on the market conditions to provide you optimal returns with minimal risk.

These funds are actively managed by professional fund managers who constantly keep rebalancing the portfolio by changing the mix of equity, debt, and other asset classes.

In short, these funds buy more equity when markets fall and sell when markets rise in a bid to offer a better alpha to investors.

Best performing balanced advantage funds

Now that you have understood what focused funds, investment horizon and risk associated with them. Here is a look at the top five balanced advantage funds:

Tax implications

When you redeem the units of balanced advantage funds, you earn taxable capital gains. The rate at which you will be taxed depends on the period for which you stayed invested in the scheme – the holding period. The tax rates are as follows:

Short Term Capital Gain (STCG) – A holding period of up to one year. STCG is taxed at 15%.

Long Term Capital Gain (LTCG) – A holding period of more than one year. There is no tax on LTCG of up to Rs. 1 lakh. Above this amount, LTCG is taxed at the rate of 10% without the benefit of indexation.

(Disclaimer: The above list is for informational purpose only. Before investing, please consult your financial adviser.)