Investors, usually, look at mutual fund investments for a balanced allocation between two major asset classes, equity and debt, to generate risk-adjusted returns, mitigate the effects of volatility and limit credit risk. An adequate mix of assets such as equity and debt can assist your portfolio to survive across various market cycles. It becomes a daunting task for investors to allocate their funds to an optimal asset mix depending on the market conditions, notably Balanced Advantage fund comes to the rescue in such a situation.
Balanced Advantage funds are increasingly emerging as an alternative to pure equity and debt funds, as they provide an edge of equity alpha and try to maintain relatively lower volatility. Balanced Advantage funds are hybrid mutual funds which are also known as Dynamic Asset Allocation Funds. In a Balanced Advantage fund, the asset allocation between the two asset classes – equity and debt is managed dynamically depending on the prevailing market conditions. Dynamic asset allocation seeks to lower downside risk while providing investors with better risk-adjusted returns.
Balanced Advantage Funds often get pushed as a one-stop solution for all investors’ asset allocation needs, as these funds often straddle between equity and debt. Investors may consider Balanced Advantage Funds as they provide an opportunity to reap the benefits of varying market conditions without constantly timing the market or monitoring the asset allocation of the portfolio.
Mirae Asset Mutual Fund has launched Mirae Asset Balanced Advantage Fund. It is an open-ended Dynamic Asset Allocation Fund. On the launch of this scheme, Mr Swarup Mohanty, CEO at Mirae Asset Investment Managers (India), said, “Investors fear falling markets. But in a country like India, not participating in the equities markets could be a matter of regret in the long run. Mirae Asset Balanced Advantage Fund seeks to preserve investor participation throughout the market cycles and aims to generate reasonable performance over the long run. The AMC has been offering product suites designed to address the needs of investors keeping in mind the risk-reward factor, and Mirae Asset Balanced Advantage Fund is a continuation of this process aimed at offering the right kind of investment solutions.”
Table 1: Details for Mirae Asset Balanced Advantage Fund
|An open-ended Dynamic Asset Allocation Fund
|Balanced Advantage Fund
|The investment objective of the scheme is to capitalize on the potential upside of equities while attempting to limit the downside by dynamically managing the portfolio through investment in equity & equity-related instruments and active use of debt, money market instruments and derivatives.
However, there is no assurance or guarantee that the investment objective of the scheme will be realized
|Rs 5,000/- and in multiples of Re 1 thereafter. Additional purchase Rs 1,000/- and in multiples of Re 1 thereafter.
|Rs 10/- per unit
|Nifty 50 Hybrid Composite Debt 50:50 Index
|July 21, 2022
|August 03, 2022
(Source: Scheme Information Document)
The investment strategy for Mirae Asset Balanced Advantage Fund will be as follows:
Mirae Asset Balanced Advantage Fund endeavours to capitalize on the potential upside of equities while attempting to limit the downside by dynamically managing the portfolio through investment in equity & equity-related instruments and active use of debt, money market instruments and derivatives.
The investment strategy revolves around the approach that different asset classes exhibit different risk-return profiles and relatively low correlation to each other as compared to investments within the same asset class. The fund manager will determine asset allocation between equity and debt depending on prevailing market and economic conditions. The debt-equity mix at any point in time will be a function of various factors such as equity valuations, interest rates, view on the asset classes and risk management etc.
Equity Component – The fund manager analyses the overall equity market outlook, valuations and trends and will invest in a well-diversified portfolio of equity & equity-related instruments. The focus would be to build a portfolio of strong growth companies, reflecting our most attractive investment ideas at all points in time. The universe of stocks will comprise majorly of companies having
– Robust business models
– Quality of management
– Better valuations
– Enjoys sustainable competitive advantages as compared to their competitors
– High return ratios
The fund has the flexibility to invest across market capitalization in portfolio companies in a sector agnostic portfolio.
Debt Component- The scheme will also invest in debt securities and money market instruments. The credit quality of the portfolio will be maintained and monitored using in-house research capabilities as well as inputs from external sources such as independent credit rating agencies. The investment team will primarily use a top-down approach for taking interest rate view, and sector allocation along with a bottom-up approach for security/instrument selection.
The scheme may utilise an internal proprietary model to monitor the market to ascertain the asset allocation opportunities from time to time. This model may provide broad guidance regarding the relative valuation levels and scope of the market opportunities as may be relevant for investing.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for Mirae Asset Balanced Advantage Fund
|Indicative Allocation (% of net assets)
|Equity and equity-related instruments
|Debt securities (including securitized debt), money market instruments (including Triparty REPO, Reverse Repo and equivalent)
|Medium to High
The Scheme shall not invest in Units issued by REITs and InvITs or in foreign securities including ADR/GDR/Foreign equity and overseas ETFs.
(Source: Scheme Information Document)
While the fund manager may utilise the in-house proprietary model as a broad indicator for asset allocation; the fund manager shall have the final prerogative to apply their discretion and judgement while determining the allocation percentage, the allocation interval and the allocation approach as may be appropriate to pursue the investment objective of the fund.
Who will manage Mirae Asset Balanced Advantage Fund?
Mr Harshad Borawake and Mr Mahendra Jajoo will be the designated fund managers for this scheme.
Mr Harshad Borawake will be managing the equity portion of this scheme. He holds MBA (Finance) and B.E. (Polymers) degrees and has an experience of more than 17 years his primary responsibility includes Investment Analysis & Research. Prior to joining Mirae AMC, he was associated with Motilal Oswal Securities as Vice President (Research) and with Capmetrics & Risk Solutions as Research Analyst – Equity.
At Mirae Asset Mutual Fund, Mr Borawake currently manages, Mirae Asset Banking and Financial Services Fund, Mirae Asset Equity Savings Fund (Equity portion) and Mirae Asset Hybrid Equity Fund (Equity portion).
Mr Mahendra Jajoo will be managing the debt portion of this scheme. He is a CFA, ACA, and ACS and has over 29 years of experience in the field of financial services. Prior to joining Mirae AMC, he was working as a Director with AUM Capital Markets Ltd. He has also been associated with organizations like Pramerica Asset Managers Ltd., Tata Asset Management Ltd., ABN AMRO Asset Management Ltd and ICICI Group.
At Mirae Asset Mutual Fund, Mr Jajoo currently manages, Mirae Asset Equity Savings Fund (debt portion), Mirae Asset Hybrid Equity Fund (Debt Portion), Mirae Asset Cash Management Fund, Mirae Asset Dynamic Bond Fund, Mirae Asset Savings Fund, Mirae Asset Short Term Fund, Mirae Asset Ultra Short Duration Fund, Mirae Asset Banking and PSU Debt Fund, Mirae Asset Corporate Bond Fund, Mirae Asset Money Market Fund and Mirae Asset Nifty SDL Jun 2027 Index Fund.
Fund Outlook – Mirae Asset Balanced Advantage Fund
Mirae Asset Balanced Advantage fund is a type of hybrid fund that aims to follow a dynamic asset allocation strategy using fundamental parameters. An internal investment approach couples qualitative and quantitative assessment of macroeconomic, market and technical indicators, valuations, growth outlook, interest rates, liquidity, etc.
The scheme aims to capture the upside during a bull market and limit the downside during bear phases. The fund managers will follow an internal model based on adjusted PE (Price to Earnings) and PBV (Price to Book Value) ratio in equities, and a Buy and Hold strategy in debt allocation.
Being an actively managed fund, it offers fund managers the flexibility to ascertain the asset allocation. You need not time the market, as the fund’s asset allocation moves between equity and debt based on the prevailing market conditions. This fund will provide the investors with an inherent benefit of investing in different asset classes and thereby having a diversified portfolio. The scheme follows a fundamental approach and endeavours to provide an optimum equity market participation for an investor. Whereas the debt exposure endeavours to provide an income approach to the fund.
Although the scheme will limit the downside and optimise the potential upside in a volatile market, do note that it allocates a major part of its assets to equity as well as debt securities. While the allocation to equities is risky in nature and may tend to lose money in extreme market conditions, the allocation to debt securities is prone to credit risk, interest rate risk, etc. which may have an impact on portfolio valuation.
Additionally, the persistent repercussions of the Russia-Ukraine conflict, rising interest rates, and spiralling inflation are all issues that represent a significant risk to economic growth. They are the root cause of the prevailing high market volatility. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is unknown. This makes Mirae Asset Balanced Advantage Fund a bit risky investment proposition.
Thus, the scheme is suitable for investors who can stomach the high risk and have a long investment horizon of at least 5 years. Ensure that your investment objective aligns with the fund.
This article first appeared on PersonalFN here