What Are Balanced Advantage Funds-Shootih

What Are Balanced Advantage Funds And Why Businesses Should Consider Investing In Them

Who doesn’t want the best of both worlds? 

Well in life, this might not always be the case, but in mutual funds investment, it is very much possible. 

If you are a business investor looking for growth and returns of equity funds along with the security of debt funds, then Balanced Advantage Funds are worth considering. 

Balanced Advantage Funds are a type of hybrid fund that dynamically allocates your investment between equity and debt instruments. 

In this blog, we have covered everything you need to know about Balanced Advantage Funds and why you should consider investing in them. 

Balanced Advantage Funds: An Overview

Balanced Advantage Funds also called BAF is a type of hybrid fund that allocates investors’ money in both equity and debt funds. There are multiple hybrid funds like Aggressive Hybrid Funds, Conservative Hybrid Funds, Multi-Asset Allocation Funds, Arbitrage Funds, Equity Funds, etc. 

What makes BAF stand out amongst other hybrid funds is that there’s no restriction on resource allocation. Fund managers can allocate any percentage of the money into equity or debt funds depending on the ongoing market scenario. 

BAFs in a nutshell-Shootih

How Do They Work? 

To know what makes BAF truly unique and one of the favorite choices of investors, let’s understand how they work. 

Balanced Advantage Funds, also known as equity-oriented hybrid funds, allocate about 60-80% of funds in equity and 20-35% in debt. So suppose if an investor is investing Rs. 100, about Rs. 50 to Rs. 80 will be allocated to equity funds and about Rs. 20 to Rs. 30 will be allocated to debt funds. 

A higher percentage of money is allocated to equity funds with the intention of capital appreciation while the money allocated to debt funds helps in providing a safety net to the investors. 

BAF is suitable for investors looking for investing corporate money for growth opportunities and capital appreciation while reducing the risk to a certain extent. 

Features of Balanced Advantage Funds:

Features of Balanced Advantage Funds-Shootih

Following are the features of BAFs that make them the favorite choice for investors: 

1. Rebalancing:

Balance advantage funds keep on rebalancing the fund’s allotment over time. Suppose initially 70% of your funds were allocated to equity and 30% were allocated to the debt. So if you have invested Rs. 100, out of it Rs. 70 was equity and Rs. 30 was debt. Now after a year, you got returns on equity and your investment grew from 70 to 77. While there was no return of debt. So the new allocation became 77% in equity & 23% in debt. 

The Balanced Advantage Fund will automatically reallocate the funds so that the ratio becomes 70:30 again. 

In the case of other funds, investors or fund managers have to manually manage their funds over and over again. 

2. Switching: 

Another crucial feature of Balanced Advantage Funds is that you can switch your allocations according to the market conditions. For example, if the equity market is high, fund managers allocate more funds to equity to skim the market highs. 

And when debt funds are performing well, fund managers allocate more funds to them to ride the market high. 

3. Diversification: 

The rising uncertainties in the market have made investors worried and they are tip-toeing around the various investment options and whether or not they should invest. Portfolio diversification is a remedy to overcome market volatility as it allows investors to allocate the funds in different portfolios and don’t get burnout with concentrated risk. 

BAFs allocate the funds to both large-cap and mid-cap stocks. While large-cap stocks provide more stability, mid-cap stocks provide ample opportunity for growth and gains. 

4. Taxation: 

BAFs are tax-efficient investments. As we already discussed, BAF automatically reallocates the funds over a period of time. Investors do not need to manually adjust their asset allocation which might subject them to taxation on the capital gain during the short term. Also, the majority of funds are allocated towards equity, which already has lower tax rates in general. 

Must Read – Why Should Corporates Invest In Mutual Funds?

Why You Should Invest In Balanced Advantage Funds:

Why You Should Invest In Balanced Advantage Funds-Shootih

If you are looking for the following scenarios, you can choose BAFs as the investment option: 

You Want To Keep Invested For Least 3 Years Or More: 

If you have some business idle cash that you can invest for about 3 years or so then investing in BAF can make a lot of sense. As we have already mentioned, BAFs automatically rebalance the funds’ allocation periodically. If you want to gain reasonable returns on your investment, you should keep yourself invested in the BAFs for at least three years or more. 

If You Are Looking To Diversify Your Portfolio:

Diversifying your portfolio is the best way to evade risk. If you are looking to diversify your portfolio across equity & debt and large-cap and mid-cap funds then BAFs are the ideal investment option for you. There’s no upper or lower limit to fund allocation between equity and debt and fund managers can adjust their allocation based on the market conditions. If you are looking for risk-adjusted returns, BAFs are the best option for you. 

If You Looking To Get Higher Returns Than The Fixed-Income Instruments: 

Even though fixed-income instruments are safer, they do not provide as good returns as stock instruments. BAFs are hybrid funds that primarily invest in equity and allocate a share to fixed-income instruments to provide a safety net to the investors. Since BAFs allocate a larger share to equity, they gain better returns than the fixed-income instruments. 

You Are Looking For A Benefit In Taxation: 

As mentioned above, the taxation process of BAFs is similar to that of equity funds. So just like equity funds, BAFs also have tax benefits for the investors. The automatic fund reallocation feature of BAFs also helps in reducing the taxes as the investors do not have to re-adjust the fund allocation themselves and thus their liability for taxation over capital gains reduces. 

These are the four ideal scenarios when you can consider investing in Balanced Advanced Funds. 

Who Can Invest In Balanced Advantage Funds:

Now let’s come to the most important question, who can invest in Balanced Advantage Funds? The answer is quite straightforward, anyone! Be it an individual or business, beginner or a seasoned investor, anyone can invest in Balanced Mutual Funds. 

If we talk particularly about business investors, Balanced Advantage Funds can be quite an ideal investment option if they have some spare capital that they can put aside for a few years and wouldn’t need during an emergency. 

BAFs offer better returns than fixed-income securities, so any business investor aiming at capital gains and having an appetite for risk can consider investing in them. BAFs also provide certain tax advantages to investors, making them quite attractive options for businesses. 

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    All mutual fund investments are subjected to a certain degree of market risks, including Balanced Mutual Funds. Therefore, before investing in BAFs, it is important to consider your long-term and short-term financial goals, risk appetite, and the duration you want to stay invested for. 

    If you are a business owner, CEO, or CFO who wants to jump into the booming mutual fund market to grow business wealth, Shootih can assist you. Shootih is the best direct mutual funds platform specially created for making mutual funds investment easy for business investors. 

    You can easily set up your investment account with Shootih and invest in a diversified range of mutual funds including equity, debt, and hybrid funds suitable for your financial goals. You can always explore our services to know how we can help you! 

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