As per SEBI, a Balanced Advantage Fund is defined as an ‘open ended dynamic asset allocation fund’. As the name suggests, the assets of a mutual fund scheme are allocated dynamically based on the market conditions to equity and debt securities. It is categorized under Hybrid Funds.
What are Balanced Advantage Funds
It is a re-categorization of Hybrid Funds done by SEBI and it differs from Balanced Funds. Balanced Funds have a fixed ratio for investment in equity and debt with a narrow band for flexibility, about 40-60% equity allocation, whereas Balanced Advantage Fund invests 33% in pure equity and 33% in arbitrage to keep gross equity investments around 65% and invest the rest in debt. It has the flexibility for dynamically shifting the corpus to and from equity/debt.It aims for capital appreciation but also seeks to guard against volatility. They are taxed under Equity Funds (10%) and not Debt Funds (20% with indexation).
Exposure of the fund corpus to equities or debt instruments in higher/lower ratios is completely upon the discretion of the fund managers who invest in different money market instruments based on market conditions. Strategies for investments vary with each Asset Management Company (AMC).
Who should Invest
- Investors who are looking for long-term wealth creation and are ready to invest for a tenure of 3-5 years. One has to remain invested as there could be under performance in the short term
- If you want to earn returns from equity investments but also want to stay guarded against market risks then this fund could be for you. Stocks help in wealth creation while debt instruments act as a security against unfavorable market times. It can be considered as a less risky substitute for equity funds, or as a supplement to your equity investments
- Investors who seek a dynamic portfolio since it makes calculated investments in both equity and debt securities as per the market trends
- Although, it suits a wide spectrum of investors yet the funds are not for investors who are risk averse or expecting an assured regular income. If you are looking for more liquidity, and do not have a long-term investment horizon, pure debt funds or even ultra short term funds could be a better bet for you
Alternatively, you may opt for other Hybrid Funds or go for Balanced Funds. Some experts suggest it is better to stick to simpler hybrid fund options such as Aggressive Funds or Conservative Funds as the expense ratio of Balanced Advantage Funds is higher and the credit quality of debt elements aren’t guaranteed. It is also important to check the fund’s portfolio as not all schemes use hedging.
Benefits of Investing in Balanced Advantage Funds
Balanced Advantage Funds draw certain benefits over other mutual fund schemes as below:
Most of the balanced advantage funds seek high returns from equity investments. However, the fund managers shift the fund into bonds when market valuations go high.The dynamic asset allocation helps in reaping benefits of equity while safeguarding it from market volatility. It delivers higher returns than debt funds and is similar in structure to equity funds with lesser rigidity
- Diverse Portfolio
The dynamic allocation provides flexibility to the managers and portfolio diversity to the investors as there is continuous shifting in assets as per prevailing market conditions. Equity investments are also pan sectors and across market capitalization
- Relatively Safer
Balanced Advantage Funds are relatively less volatile and safer than other equity funds as when markets are expensive, fund allocation to debt is increased which acts as a security. Similarly, the reverse is done when the market is favourable. Effective equity and debt allocation helps in risk adjusted returns
Things to be considered before investing
Every investment requires a sufficient amount of research and valuation of factors such as risks involved, history of returns accrued, business proficiency of the holdings etc. Here are some of the things which must be considered by an investor before investing into the Mutual Funds:
- Financial Goal– Before making any investment decisions, it is very important to evaluate that the fund objective is aligned to your financial goals
- Fund Performance– Measuring the performance of the fund in both bullish and bearish market situations is a necessity as it helps the investors in selecting a reliable fund. One should always choose a fund which has been performing with consistency
- Fund House & Management– There are numerous Mutual Funds regulated by different AMCs (Asset Management Companies). Fund houses & Fund Managers play a very decisive role in the allocation of assets and selection of stocks. If the management has enough experience and expertise, the fund will easily sail through promising market conditions and deliver good returns
- Costs Involved– There are different costs involved in Mutual Fund investments such as Expense Ratio, Entry Load and Exit Load. Investors must review these costs before heading up for investments>
- Other Basics from the Portfolio: There are other different factors such as the fund NAV (Net Asset Value), AUM (Assets under Management) etc. which are to be viewed to make sure of the reliability and investor engagement in the fund
Best 5 Balanced Advantage Funds to invest in 2020
|Fund Name||AUM||3-year Returns||5-year Returns||Link|
|ICICI Prudential Balanced Advantage Fund||₹28,528 crore||11.34%||10.14%||Invest Now|
|Aditya Birla Sun Life Balanced Advantage Fund||₹2,726 crore||8.80%||9.34%||Invest Now|
|Invesco India Dynamic Equity Fund||₹893 crore||10.88%||9.22%||Invest Now|
|Nippon India Balanced Advantage Fund||₹2,694 crore||11.66%||8.25%||Invest Now|
|HDFC Balanced Advantage Fund||₹44,497 crore||9.78%||8.19%||Invest Now|
Balanced Advantage Funds are counted as Equity Funds for tax purposes. Like all equity funds, capital gains up to Rs. 1 Lakh (after 1 year) are exempted from taxation, and the rest are taxed at 10% as per the taxation norms of Equity Funds. For example, an investor makes capital gains of Rs. 2 Lakh, then Rs. 1 Lakh is exempted from tax and the remaining Rs. 1 Lakh will be taxed at 10%. Thereby, the payable tax at remaining rs. 1 Lakh is Rs. 10,000.
If the s/he redeems the fund in less than a year, then the capital gains will be taxed at 15% and no tax exemption will be provided. In that case, the payable tax on Rs. 2 Lakh would be Rs. 30,000.
How to Invest in Balanced Advantage Funds?
You can invest in large and mid cap funds through either of the following ways-
- Offline mode of investing– If you are not confident of your knowledge, you may choose to invest through a broker. However, investing in a fund through a broker will make you eligible for investments through regular plans that offer different returns and varied expenses in investment. If you wish to invest in the fund independently, you must visit the nearest branch of the AMC of your fund. Don’t forget to carry the following documents-
- Identity Proof (Aadhar Card)
- Canceled cheque
- Passport size photos (around 4-5)
- PAN Card
- KYC documents (for KYC verification)
- Online mode of investing– If you do not wish to add on to your expense of commissions or brokerage, you may visit online investment platforms such as Paisabazaar.com wherein you can choose from and compare more than 1,700 funds- all in one place, instead of following the long procedure of visiting the website of each AMC and then choosing from them. Here, you can select the fund in which you want to invest, look at the details and compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment>
For detailed information on how to invest in mutual funds, click here
FAQs on Balanced Advantage Fund
Q. Is ICICI Balanced Advantage Fund good?
A. Yes. it is one of the top performing funds among Balanced Advantage Funds. Experts suggest it is suitable for long term, preferably for 10 year investment where it has given returns as good as 12%.
Q. What is the difference between a Hybrid fund and a Balanced Fund?
A. The right question here in context of the above article should be the differences among a Hybrid, a Balanced and a Balanced Advantage Fund as the latter two are also different categories of fund as explained above. Hybrid Funds invest the corpus in a mix of equities and debentures. Based on higher exposure to equities or debt, it is known as Aggressive Hybrid Fund or Conservative Fund respectively. When the exposure to both assets is almost equal and balanced, it is a Balanced Fund. When the fund managers dynamically shift the corpus between equity and debt and there’s no fixed ratio, it’s a Balanced Advantage Fund.
Q. Are Balanced Advantage Funds good investments?
A. Yes. the various advantages of this fund (as stated above) make it a good investment choice. It is less volatile, more diverse and suited for long term investors.
Q. How does a Balanced Advantage Fund work?
A. Fund managers make calculated moves as they keep shifting the corpus from equity to debt and vice-versa based on market conditions. This way the funds are able to give high returns and stability at the same time. Due to its investment mandate, it need not to stay invested in any one asset class even if market conditions do not allow it.
Q. Is HDFC Balanced Advantage Fund dividend taxable?
A. Yes. 10% tax is applicable on Long Term Capital gains (LTCG), even on the dividends earned from the equity and equity oriented instruments. This 10% DDT (Dividend Distribution Tax) will be deducted before distribution of the dividend.