Hybrid fund is a mutual fund scheme category that invests in two or more asset classes- namely Equity & Debt. While there are multiple types of hybrid funds. In this article, we will be looking at balanced advantage funds only.
Balanced advantage funds are also known as dynamic asset allocation funds. The portfolios of these funds are rebalanced on a periodic basis depending on the market conditions. Moreover, a balanced advantage fund may also have investments in derivative instruments as a risk-hedging mechanism.
Reasons to choose Balanced Advantage Funds
1. Possibility of stable returns
A balanced advantage fund invests in debt and equity dynamically. Thus, investors get a debt cushion to battle the volatilities of equity markets. Consequently, the returns generated by balanced advantage funds may be more stable than those generated by equity funds.
2.Relatively Lower risk
Along with equity funds, balanced advantage funds also invest in debt securities depending on the market conditions, which may help to lower the overall portfolio risk. As the fund portfolio has lesser exposure to the vagaries of equity markets, the risk of capital erosion is relatively lower, thereby making balanced advantage mutual funds a good bet if your risk tolerance is moderate. But, at the same time, the equity exposure in the fund portfolio may help you in wealth creation too.
3.Dynamic asset allocation strategy
Fund managers of balanced advantage funds follow the dynamic asset allocation strategy. When markets are bullish during economic growth phases, the fund manager may transfer some investments from debt to equity instruments. Conversely, during economic downturns, the fund manager may transfer some investments from equity to debt instruments. Thus, balanced advantage mutual funds help to minimise the risk & aim for better returns.
4. Requires less monitoring
You can hold a diversified investment portfolio by investing in a good mix of stocks, bonds, and other instruments. But monitoring and tracking the performance of different types of securities can be a time-consuming and cumbersome process. A balanced advantage fund is a one-stop solution for diversifying your portfolio across different types of equity securities and bonds. Instead of, say, monitoring 10 different investments, you need to monitor only one mutual fund investment so long as it is in line with your investment objective and risk appetite.
5. Tax benefits
Balanced Advantage Funds are generally classified as equity oriented funds for the purposes of taxation and thereby, capital gains are taxed at 10% (without indexation) if investments are held for more than 12 months & are taxed at 15% if investments are held for up to 12 months.
Balanced advantage mutual funds may help investors achieve their financial goals at a relatively lower risk than equity funds. They can also be called an all-season fund because of the dynamic allocation strategies followed by the fund managers.
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully