4 Ws of Balanced Advantage Funds

It's no secret that the world of mutual funds is a lot like the disorienting city of Tokyo. But a rule of thumb every investor swears by? Knowing what, who, why, and when of the financial asset before you dive in headfirst.

Because as they say on Wall Street: “The four most dangerous words in investing are: ‘this time it’s different.” So, if you go unprepared into the world of balanced advantage funds, investing will be a challenging game.

The 4 Ws of balanced advantage funds

To understand the nuances of investing in balanced advantage funds, you must first understand the 4 Ws of balance advantage funds or BAFs.

What are balanced advantage funds?

Balance advantage funds (not to confuse with balance mutual funds) can freely shift between debt and equity, based on the market conditions. SEBI does not put any caps or minimum exposure limits on BAFs, which allows them to shift freely. Meaning, when the market goes up high, BAFs move funds into debt (lower risk profile) and shed exposure from equity (high-risk profile).

The strategic switch between different assets safeguards your investment, so the gains you make from the funds remain intact. Irrespective of the market fluctuations, BAFs ensure your money is working for profitable returns only.

Additional Read: What kinds of investors should opt for mutual funds?

Who should invest?

Ideally, a BAFs investor should be someone looking to create long-term wealth via lower volatility or seeking exposure to both debt and equity asset classes through dynamic asset allocation.

Individuals who are new to mutual funds investment can also allocate funds to BAFs if they want to seek exposure to the equity market while keeping the risk on the low end. Those wanting to dip toes in the equity markets following a conservative approach can also benefit from investing in BAFs.

Why invest in BAFs?

You can’t predict market volatility accurately – but what you can do – is build a volatility-proof portfolio! Experts often contend that BAFs should form the core of your portfolio, and why not? BAFs can dynamically navigate the equity market and reduce volatility to help you avoid a bumpy ride. Especially now, when the pandemic's unpredictability has kept the markets painfully volatile.

If you hate losing money (who doesn't?!), BAFs should be your go-to investments! Depending on the funds' model, they can dynamically shift between debt and equity to cut equity exposure. In case your portfolio has suffered a loss due to a market fall and needs downside protection, BAFs will be on the frontlines.

Additional Read: Should You Invest in Balanced Advantage Fund Now?

When to invest?

If mutual funds were fruits, BAFs would be the bananas of the lot – the "all-season" funds! But while they remain unharmed by the market volatility, you should only invest in BAFs if you're ready to stay invested for a long investment horizon.

Remember, the timing of your investment determines 90% of your returns. If you let BAFs take the wheel, they can automatically perform asset allocation and let you enjoy lucrative returns while you do nothing!

In conclusion

As the bulls and bears steer the market movements, you can rely on Tata Capital's Moneyfy app to help you navigate volatility safely. Using our digital platform, you can screen, analyse, and compare funds for goal-driven investing.