Mutual funds: Investors are betting on balanced advantage funds
In an era when the equity market has become volatile, individuals are increasingly investing in balanced benefit funds for better risk-adjusted returns. These funds are open-ended hybrid funds and they limit the downside and maximize upside potential in a volatile market. The fund manager decides the allocation based on the price / earnings ratio of the stocks and changing market conditions.
Balanced Advantage funds can help investors mitigate market volatility and the returns of these funds are more reliable over longer periods as the investment is spread out. In addition, these funds are ideal for retail investors as they do not have to frequently monitor their asset allocation as the fund manager does this dynamically and maintains the right mix of assets under all market conditions. Marlet.
In a Balanced Advantage fund, an investor can win when the stock markets go up and protect them when they go down. Thus, an investor can profit from both rising and falling markets by investing in these funds. Additionally, one can stay disciplined by overcoming emotional biases in uncertain markets and strive for regular income through a systematic withdrawal plan.
Mix of equity and debt
As the market regulator does not specify any minimum or maximum limits for investing in debt or equities in balanced benefit funds, this makes this fund a better choice among all hybrid funds for investors. However, these funds offer protection against downside risk as they limit the downside in a falling market.
In balanced benefit funds, fund managers increase exposure to equities when investment parameters turn favorable and reduce it when parameters turn unfavorable. The fund manager can sell assets with high valuations and buy assets which can be fair valued depending on the investment strategy of the system. This can improve the risk-adjusted return for long-term investors.
Investors who wish to rely on the expertise and skills of fund managers to decide on equity and debt allocation should look to these funds. Investors should choose a fund that invests in large cap companies on the high quality AAA rated stocks and bonds side and similar securities on the debt side.
Experts say that in prevailing market conditions where valuations are stretched and benchmarks are at an all time high, balanced benefit funds can be a good bet. In these funds, when valuations get expensive, fund managers reduce the allocation to equities and increase the allocation to debt. Alternatively, when valuations are cheap, fund managers increase allocations to stocks.
These funds can help reduce volatility and risk and depending on market conditions, asset management companies set exposure to equities. Most of the funds in this category have an equity allocation between 30% and 65%.
Experts say investors should consider a longer investment period and benefit from the taxation of stocks. Generally, in the short term, Balanced Advantage funds can give negative returns. So, to overcome this risk, experts suggest that the investment period should be at least three to five years.
Experts suggest that balanced advantage funds are suitable for investors who are looking for a more aggressive alternative to pure debt funds and want to invest in stocks for the potential of higher returns, while limiting their losses if the markets fall.