Stock market is unpredictable with sudden fluctuations and volatility. As an investor, you must be quick and responsive to leverage opportunities created by the market, whether in favour of equities or debts. But what if you are new to investing or don’t have the expertise to analyse market trends? This is where balanced advantage funds (BAFs) help.
Also known as dynamic asset allocation funds, BAFs are hybrid mutual funds that follow an active management approach. The fund manager uses quantitative models, market trends, and valuation metrics to decide the allocation to capture opportunities during both bullish and bearish phases.
But the question is, can you use them in the current market scenario? Here are four reasons why BAFs make perfect sense in any market scenario.
- Mitigating market volatility
Volatility is something that every investor has to deal with. BAFs offer an advantage by actively managing the asset allocation between equities and debt instruments.
During market uncertainty, these funds reduce exposure to equities and allocate more to debt to provide stability to the portfolio. In the same way, during bullish phases or when stocks are expected to rise in value, BAFs increase equity exposure to capture the opportunities. This systematic rebalancing plays an important role in generating risk-adjusted returns.
- Wealth creation opportunities
BAFs allocate a portion of the investment to equities and buy more equities when they are undervalued or trading low. This strategy gives long term benefits when the market bounces back and earns profits.
Moreover, these funds have lower volatility and risk compared to a pure equity fund which primarily invests in equity instruments. This way, even a conservative investor can get exposure to equity at low risk.
- Diversification benefits
Diversification is essential for a well-rounded portfolio in any market scenario and BAFs inherently provide this benefit. With equities, debts, and arbitrage instruments, your portfolio risk is divided across different asset classes.
When market volatility occurs, the debt allocation acts as a hedge to reduce overall portfolio risk. During bull markets, the equity portion earns return and helps you create a long term profitable portfolio. This diversified approach helps investors maintain stability in their investments.
Besides investing in such balanced mutual funds, ensure to diversify your portfolio by investing some of your investible in gold mutual funds and real estate. Doing so will allow you to protect your investment from market fluctuations.
- Investor convenience
These funds provide a solution for investors who find it difficult to track and manage multiple portfolios or switch between different funds. This dynamic approach exposes your mutual fund investments to both profit-making areas of the market and offers advantages such as low risk exposure, better returns, and effortless portfolio management.
Such convenience through one single fund gives investors more time and energy to focus on other important goals.
Leverage the current market scenario through balanced advantage funds
When market volatility happens, it is difficult to predict how equities and debt will perform individually. In such a situation, BAFs provide stability, balance, optimised returns through systematic rebalancing. You can easily invest in these funds through online platforms like provider’s websites or mutual fund investment apps and use market volatility as a tool to reach your financial goals.
Consult a financial advisor to get valuable insights on whether a lump sum or SIP (Systematic Investment Plan) is suitable for your goals. This personalised approach can help you invest wisely and enjoy the best of both investment instruments in the form of equity growth and debt security in a single portfolio.