NS NFO SBI in September raised ₹15,000 crore from Balanced Advantage Fund – the highest by any equity-oriented fund – while Axis MF converted its existing Dynamic Equity Fund to Balanced Advantage Fund. NJ MF is making its debut with Balanced Advantage Fund offering. The assets under management increased by 62% to ₹1.41 lakh crore as compared to the previous year.
Balanced advantage funds generally invest in a mix of debt and equity. Usually, they invest less in equities when the market valuations appear expensive and vice versa. Fund managers fix equity valuations based on the Trailing Price-Earnings (PE) ratio of Nifty 50/S&P BSE 100 and use price to book and other ratios. Dividend Yield to decide equity allocation.
As equities become more expensive and markets trade with investors unsure about the direction of the market, financial planners are advising investors to go through balanced profit funds as they reduce volatility and risk. . The Nifty 50 PE which stood at 17.15 on March 23 last year has increased to 26.84 and the Price to Book Value (PB) has increased from 2.17 to 4.39 in the same period.
Amol Joshi, Founder, Plan Rupee said, “As the market is trading at an all-time high, investors are not sure of the market direction and are turning to Balanced Advantage Funds to participate in equities. ” However, balanced advantage funds also come with their own share of risk and are not as safe as they are believed to be. Vidya Bala, Founding Partner, Prime Investor said, “There are various strategies used by fund houses to handle the equity allocation which ranges from 30 to 75 per cent.
HDFC Balanced Advantage Fund is the largest fund in the category with assets of Rs 42,000 crore, with equity exposure of up to 75%.
The second largest ICICI Balanced Advantage has an unhedged equity exposure of 37.2%, while Edelweiss Balanced Advantage Fund which follows a pro-cyclical approach currently has an equity allocation of 60%. Most other funds in this category have equity allocation between 30 and 55 per cent.
Bala cautioned investors to use it as a safe product as these funds have given negative Return Over a period of one year when the market has fallen sharply. “Investors using this category should come up with a time frame of 2 years and use it to earn equity-like returns with equity taxation,” Bala said.
Joshi believes that conservative investors can get around 40% of their equity allocation through such funds. He recommends combining the long-standing track record of ICICI Prudential Balanced Advantage Fund and Edelweiss Balanced Advantage Fund for its pro-cyclical strategy.