Choosing a worthy mutual fund rightfully is so essential for investment, particularly when there are multiple unfavourable headwinds at play that all point to troubled times of the economy.

Equity markets are undergoing roller coaster swings; and as for the debt markets, the credit crisis cracks are deepening. Apparently taking prudent decisions becomes even more imperative then, as one bad fund investment can stagnate or lower your chances of good gains.

Have you considered an option of Balanced Advantage Fund for investment?

Probably, not? I guess!

Let me explain to you why you should consider it.

Initially, a Balanced Advantage Fund, was a subset of balanced funds. But, since the re-categorisation of mutual funds, this is a newly formed sub-category of an open-ended hybrid fund.

[Read: Aggressive Hybrid Fund or Balanced Advantage Fund, Which Is A Better Option?]

According to SEBI’s re-categorisation norms, balanced advantage funds are hybrid funds that are managed dynamically. In simple words, hybrid funds shuffle their equity-debt asset allocation based on prevailing market valuation and sentiment in each asset class.

The best aspect of balanced advantage funds is the flexibility to invest up to 100% of their corpus in either debt or equity with the aim of generating better returns by optimally and dynamically shifting the allocation of their portfolio in each asset class to get the best of both worlds as well as to mitigate the risk these funds carry/have. Whenever necessary, to capture potential gains it uses arbitrage opportunities as well.

How have the funds fared over the years?
From the performance table below, one can see that performance of ICICI Pru Balanced Advantage Fund, HDFC Balanced Advantage Fund and Reliance Balanced Advantage Fund has been better or in line with benchmark index over 2-year, 3-year, and 5-year time frames. 

Table 1: Performance over different years

Scheme Name Absolute Returns (%) CAGR (%)
6 Months 9 Months 1 Year 2 Years 3 Years 5 Years
Category: Balanced Advantage            
ICICI Pru Balanced Advantage Fund 4.18 7.30 8.85 7.87 8.81 10.50
HDFC Balanced Advantage Fund -1.55 4.47 4.80 7.28 9.87 10.14
L&T Balanced Advantage Fund 2.96 5.83 5.95 6.95 7.12 8.25
Reliance Balanced Advantage Fund 2.30 6.67 6.90 6.27 9.06 9.66
Aditya Birla SL Balanced Advantage Fund 3.26 6.15 7.55 5.24 7.77 9.72
HDFC Balanced Advantage Fund (Adjusted) -1.55 4.47 4.80 5.04 8.25 9.41
Tata Balanced Advantage Fund 5.31          
Kotak Balanced Advantage Fund 5.13 9.07 9.84      
Union Balanced Advantage Fund 4.17 7.64 7.85      
Crisil Composite Bond Fund Index 6.27 8.14 8.14 6.75 7.22 9.09
NIFTY 50 – TRI 1.61 8.50 8.50 9.08 10.42 9.01
S&P BSE SENSEX – TRI 2.92 9.93 9.93 11.79 11.76 9.25

Data as on September 26, 2019
(Source: ACE MF)

And in terms of performance across market cycles, HDFC Balanced Advantage Fund, ICICI Pru Balanced Advantage Fund and L&T Balanced Advantage fund have managed to outperform or perform in line with the benchmark.

Table 2: Performance across market cycles (%)

Scheme name Bear Phase Bull Phase Bear Phase Bull Phase Bear Phase Bull Phase Corrective Phase
08/Jan/08 To 09/Mar/09 09/Mar/09 To 05/Nov/10 05/Nov/10 To 20/Dec/11 20/Dec/11 To 03/Mar/15 03/Mar/15 To 25/Feb/16 25/Feb/16 To 23/Jan/18 23/Jan/18 To 26/Sep/19
Aditya Birla SL Balanced Advantage Fund -45.52 55.25 -16.61 18.28 -11.24 24.19 2.54
HDFC Balanced Advantage Fund -53.09 89.12 -22.83 22.82 -21.55 36.14 -1.65
HDFC Balanced Advantage Fund (Adjusted) -45.44 87.41 -17.90 26.47 -18.60 32.76 -2.72
ICICI Pru Balanced Advantage Fund -36.96 46.27 -9.78 24.22 -7.93 20.69 4.49
L&T Balanced Advantage Fund  – –  –  30.16 -13.19 12.62 3.68
Reliance Balanced Advantage Fund -56.41 92.13 -26.30 29.10 -22.63 30.21 -0.04
Crisil Composite Bond Fund Index 6.67 5.11 6.82 9.13 6.06 9.43 8.35
NIFTY 50 – TRI -52.97 73.60 -24.62 25.26 -21.71 29.15 3.45
S&P BSE SENSEX – TRI -54.72 79.43 -24.19 25.14 -21.34 28.55 5.41

Data as on September 26, 2019
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

[Read: Best Balanced Advantage Funds For 2019]


Thus, it would be wise to consider adding a balanced advantage fund to your portfolio in current times of volatility. As in the current time of slow economic growth, muted demand in consumerism, geopolitical trade tensions, tepid corporate earnings, and widening fiscal deficit, a tactical allocation of balanced advantage funds would prove advantageous.

[Read: Want To Multiply Your Portfolio Returns In A Volatile Market? Read This!]

This is because the factors driving the prices of equity and assets are different. Basically, equity and debt share a negative correlation with the other asset classes. This means they often don’t move in the same direction.

Though Balanced Advantage funds set their asset allocation as per the direction of the market, they always tend to retain a minimum 65% exposure to equity to reap tax benefits. Since equity schemes enjoy a tax advantage over non-equity schemes, and hence in order to qualify as an equity scheme, a minimum equity allocation of 65% is required and retained.

However, please note that the performance of the schemes lies in the fund managers skill and ability. Most of the fund managers use valuation-based metrics in constructing and managing the portfolio. P/E Ratio, P/ BV Ratio, Price / Earnings Growth Ratio and Price / Free Cash Flow are some of the parameters used along with a long-term view, market sentiment, and outlook of the company.

Therefore, if the fund house changes the asset allocation proportion of equity and debt drastically, it will have a direct impact on the performance of the scheme in the future and in terms of risk as well. Hence, in terms of risk-return spectrum, it is skewed towards moderately high-risk investment proportion, since most of the portfolio’s asset allocation is towards equity.

So, carefully choose a worthy scheme based on the qualitative and quantitative parameters. You need to pick a scheme that has performed well consistently over market cycles and over the years. Given the burgeoning assets, you also need to check if there is a noticeable change in asset allocation and the quality of stocks in the portfolio. You do not want to end up with a scheme with illiquid investments.

[Read: How To Check If A Mutual Fund Scheme Is A Consistent Performer Or Not]

And once you select worthy balanced advantage funds for your portfolio, start investing in them preferably through Systematic Investment Plans (SIPs). Ensure you have an investment time horizon of at least five years and an appetite for moderately high risk. With SIP, you will be able to mitigate the risk involved better vide the benefit of rupee cost averaging. And finally, choose direct plans over a Regular Plan to invest for lower cost averaging.

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