What is a Dynamic Asset Allocation Mutual Fund?

Balance Advantage Funds invest in a mix of stocks and FD-like instruments. However, they keep changing this allocation based on the market conditions to provide you optimal returns with minimal risk. Balance Advantage Funds also known as Dynamic Asset Allocation Funds.

Advantages of Dynamic Asset Allocation Funds Model-based triggers which tell the fund manager adjustments needed to deliver consistent and stable returns Books profit when markets rise and invest more when markets correct, Suitable for an investment horizon of 3+ years.

Things to Remember Before Investing in Balanced Advantage Funds Invest according to the risk profile you have and the financial goals you have set for yourself.

Read the documents of the mutual fund carefully and understand the strategy that they are going to adopt while investing their corpus.

Check the past performance of the asset management company and the track record of the fund manager who is going to manage the fund.

Aim at keeping yourself invested for 3-5 years if you are looking for capital appreciation along with regular returns.

And always, just always monitor the investments you have made of your hard-earned money.

Who Should Invest in Balanced Advantage Funds?

Investors who want to invest in mutual funds that offer higher returns of equities but do not like the high risk that goes with direct investments in equities or investments in pure equities mutual funds may look at balanced advantage funds. They offer higher returns than a plain debt or a hybrid fund and their risk profile is only slightly higher than those funds.

At the same time, they are not as risky as pure equities or pure equities funds. The risk gets further minimized if the investment is for the medium or long term.

Investors should consider investing for a minimum of three years to benefit from balanced advantage funds.

You can consider investing in balanced advantage funds as an option if you are looking at earning good returns with capital appreciation but comparatively lower risk.

How Balanced Funds Work

The very aim of balanced advantage funds is to take “advantage” of the higher returns that equities offer while maintaining the “balance” on risk by investing in debt when equities prices are not too advantageous.

The uniqueness of balanced advantage funds comes from the fact that, unlike other mutual funds, balanced advantage funds do not have any pre-set limits for investing in debt or equities. These are managed dynamically. That is, the investments are made in equities at a time when they are available at a comparatively cheaper price.

Alternatively, they buy equities at a high price and sell at an even higher price. And when equities are not available at cheaper prices, only then do they invest in debt. To determine this shift between equity and debt, fund managers utilize a process-driven approach known as the Asset Allocation Model.

Asset allocation models are in-house mathematical models that asset management companies use to determine the perfect mix of equity and debt allocations keeping in mind prevailing market conditions. Generally, these models are created based on a fund manager’s hypothesis about future profit projections, historical data, and other factors that can help in providing maximum returns to investors over a long-term period. This happens

dynamically depending on the strategy the funds follow.

Conclusion: One can look at BAF category as a medium in risk with higher returns

as compared to FD.