The objective of a Balance Advantage fund is to manage investments in two different asset classes, equity and debt, in the mutual fund portfolio based on evolving market conditions. This type of mutual fund works on asset allocation and aims to allocate it assets into equity and debt securities as per the dynamic market phases. Hence, investors seeking to have a balanced portfolio, approach equity and debt investments with the advantage of dynamic asset allocation in balanced advantage funds.

The balanced advantage fund follows internal investment strategy models of the fund house to allocate the assets. Ideally, if the stock market is overvalued, the scheme would reduce equity exposure; and when the stock market is undervalued, the scheme would increase equity exposure.

Hence, it reduces the risk of investing into single asset class such as equity to a large extent and sustains the balance by allocating some funds to debt or vice versa, depending on market conditions, phases, and volatility. This helps investors to gain higher risk-adjusted returns and hold a balanced portfolio that could survive various market cycles.

NJ Mutual Fund has launched NJ Balanced Advantage Fund, an open-ended dynamic asset allocation fund.

On the launch of this fund, Mr Rajiv Shastri, chief executive officer of NJ Mutual Fund said, “NJ Balanced Advantage Fund’s rule-based approach will follow a combination of four factors that have been back-tested over the past 19 years. This exercise is done by the fund house to see how the scheme would have performed with its asset allocation signals and stock selection rules. Our aim with this BAF is to reduce equity-linked volatility, while still matching Nifty or close to Nifty returns.”

Table 1: Details of NJ Balanced Advantage Fund

Type An open ended dynamic asset allocation fund Category Balanced Advantage Fund
Investment Objective The investment objective of the Scheme is to generate capital appreciation by dynamically allocating its assets between equity and specified debt securities. However, there is no assurance or guarantee that the investment objective of the scheme will be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1/-thereafter with no upper limit. Additional Purchase Rs 1000/- and in multiples of Re 1/- thereafter. Face Value Rs 10/- per unit
SIP/STP/SWP Available
  • Direct
  • Regular
  • Growth
  • Income Distribution cum capital withdrawal (IDCW)
Entry Load Not Applicable Exit Load
  • If redeemed / switch-out within 30 days of allotment – 1%
  • If redeemed / switch-out after 30 days of allotment – Nil
Fund Manager Mr Rishi Sharma Benchmark Index NIFTY 50 Hybrid Composite Debt 50:50 Index
Issue Opens: October 08, 2021 Issue Closes: October 22, 2021

(Source: Scheme Information Document

The investment strategy for NJ Balanced Advantage Fund will be as follows:

NJ Balanced Advantage Fund endeavours to generate capital appreciation by dynamically allocating its assets between equity and specified debt securities.

The scheme allocates its assets and selects securities using a rule-based active approach based on proprietary protocols. These protocols are derived based on the analysis of various market, macroeconomic, and fundamental factors.

Allocation to equity stocks is decided on the basis of market and macroeconomic variables including equity market valuation, interest rates, Gsec yields, and money supply. Equity stocks are selected and weighted using factor-based rules that aim to achieve a mix of attributes considered supportive of long-term performance within risk constraints.

The rule based active investment strategy eliminates all human intervention at the asset allocation and stock selection stage, preventing human bias and ensuring that the portfolio is constructed as intended by the proprietary protocol. The four factors that have been identified by academics and widely adopted by investors over the years as key determinants of a portfolio are as follows:

Low Volatility: Low-volatility investing identifies stocks that display a lower level of risk than the overall market. Low-volatility equities often lag when the market is rising, but may outperform when the market is falling.

Momentum: Momentum investing presumes that if stocks have performed well in the recent past, they probably will continue outperforming the market for a short period in the foreseeable future. Momentum may also occur because investors can either overreact or underreact to new information.

Quality: Quality focuses on identifying companies believed to have a greater ability to deliver sustainable returns to shareholders.

Value: Value investing focuses on companies whose stock is selling at a market price below the “intrinsic” value.

The scheme will follow the rule based active investment strategy to generate risk-adjusted returns and the investment process is pre-tested for performance and volatility in various scenarios.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation for NJ Balanced Advantage Fund

Instruments Indicative Allocation (% of assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity & Equity related instruments including Derivatives 0 100 Medium to High
Specified Debt Securities* 0 100 Low to Medium

(Source: Scheme Information Document

Who will manage NJ Balanced Advantage Fund?

Mr Rishi Sharma will be the dedicated fund manager for this scheme.

Mr Rishi Sharma is Fund manager at NJ Asset Management Pvt. Ltd. and his qualifications are B.Com from M.S. University of Vadodara and PGDBA from IES Management College Mumbai. He carries a work experience of more than 14 years of experience in quantitative research and investment. Prior to this, he was associated with IIFL Capital as Assistant Vice President heading systematic trading at a proprietary desk; Suyash Advisors as a quantitative analyst; and with Monsoon Capital, Mr. Sharma was responsible for generation of quantitative portfolios. He currently does not manage any other schemes.

Fund Outlook – NJ Balanced Advantage Fund

NJ Balanced Advantage Fund aims to dynamically allocate its assets between equity and specified debt securities to generate a balanced portfolio that gains optimal returns. This scheme offers investors an exposure to two different asset classes with a balanced approach.

The scheme follows a rule based investing strategy; it endeavours to maintain an all-weather portfolio that works efficiently across market cycles. The rule-based actively managed fund eliminates human bias in asset allocation decision making. The investment strategy manages volatility through periodic rebalancing.

However, this scheme limits the fund manager’s intervention with the asset allocation as it follows rule based investing strategy. Such strategy protocols are derived based on analysis of various market, macroeconomic and fundamental factors.

The scheme as per the market conditions may invest major amount in debt, which makes it prone to credit risk, interest rate risk etc and if it invests major amount in equity it will be prone to market volatility. Thus, this strategy may not be suitable for every investor and makes it a risky proposition.

Hence, this scheme is suitable for investors willing to have a dynamic asset allocation between equity and specified debt securities and could stomach a moderately high-risk appetite, a long investment horizon and ensure your investment objectives are aligned with your fund.

This article first appeared on PersonalFN here

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