Why Invest In Balanced Advantage Fund?

Over the course of investing, asset allocation and diversification are two aspects that one should be adhering to at all times. Asset allocation ensures that there is a balance maintained within the portfolio by allocating assets to various asset classes like equity, debt, gold etc. It also helps in striking a balance between risks and growth while fulfilling long-term financial goals. If you are an investor who is unsure how to go about allocating to equity and debt asset classes, then investing in a dynamically managed asset allocation fund or the balanced advantage category fund can be of great help to you. 

Some of the advantages of investing in balanced advantage category is as follows:

Diversification

This category scheme has the flexibility to allocate capital across equity and debt instruments as per prevailing market conditions. Since the allocation is dynamic in nature, an investor need not worry about consciously making attempts to diversify the portfolio. Within equity, the fund manage has the flexibility to invest across market capitalization and even within debt, there is flexibility to allocate across various debt instruments.  

Helps Overcome Behavioural Biases 

Equity markets are inherently volatile in nature. A volatility-driven market makes investors wary and often they end up taking rash decisions in a bid to protect their corpus from volatility. Even though investors know that one should be buying low and selling high, executing this becomes a challenging task. This is because when the market is expensive, booking profits is a difficult decision owing to the fear of missing out on further profits. On the other hand, when the market faces a steep correction, deploying fresh investments is a challenge owing to the fear of markets correcting further. As a result, investors loose on attractive investment opportunities owing to greed and fear. By invest in balanced advantage category, one can finally buy low and sell high due to the counter cyclical approach of the fund house. In effect, the fund makes use of market volatility as a growth tool to create wealth. 

Provides Downside Protection + Automatic Rebalancing

Owing to the active allocation to debt, the portfolio at all times has an element of downside protection built into it. Debt tends to deliver predictable returns and renders downside protection. Also, an investor need not worry about tracking the portfolio and rebalancing from time-to-time given the dynamic management of the fund. This eventually aids in navigating different market conditions with relative ease while fulfilling long-term financial goals.

Tax Efficient

When investors rebalance between equity and debt, the gains are subject to long term or short term capital gains tax. However, when fund managers rebalance the portfolio, investors do not attract any taxes. Further, even after the rebalancing, the tax treatment of the fund continues to remain equity-oriented, which is a win-win from an investor perspective.  

Stable Returns

With the ability to reduce the downside in the portfolio through its allocation to debt, the volatility in returns is minimal as compared to say an equity mutual fund. Historic data shows that a few of the leading funds in the category over long term has generated equity-like returns even with lesser equity allocation. This shows the power of being invested in the right asset class at the right time.  

While the category has gathered public attention over the past few years, there have been a few funds in this category which have been around for over a decade. Of this, ICICI Prudential Balanced Advantage is one of the prominent names which has thus far seen a complete market cycle and has delivered a robust investment experience. It is imperative that investors stay invested in this category with a long term perspective. 

At a time when equity market is hovering around record highs, investors who are looking to make lump sum investments can consider balanced advantage category funds. Even conservative investor may consider investing in the scheme given that the equity allocation is being judiciously managed. Investors can consider making a significant allocation in the fund and maintain it as a core part of the portfolio.