Balanced Funds Vs Balanced Advantage Funds: A Detailed Comparison

Both Balanced mutual funds in India and Balanced Advantage Funds are categorised under Hybrid MF schemes. The difference lies in the investment strategy. Curious? Let’s understand what balanced funds and balanced advantage funds are and how they differ in detail.

What are balanced funds?

Balanced funds are hybrid funds that allocate the fund corpus to both equity and debt asset types in a balanced ratio. When you invest in balanced mutual funds online, the investment follows a pre-decided ratio of investing. For instance, an aggressive balanced fund can keep 65-80% of their investments in equity securities and the rest in debt.

Here, the balanced exposure to bond and stock instruments helps with income generation and capital appreciation. When looking for the best-balanced fund for SIP, you can gauge your risk appetite to invest in equity-oriented (aggressive) or debt-oriented (conservative) funds.

Additional Read: What are Balanced Funds?

What are balanced advantage funds?

The balanced advantage funds, also known as dynamic asset allocation (DAA), are hybrid MFs, which dynamically manage their exposure to equity and debt instruments. This category was built according to the Securities and Exchange Board of India (SEBI) new norms and is free of minimum exposure caps.

Here, the assets you park in stocks and equities generate market-linked returns. On the other hand, the assets you invest in several debt instruments offer fixed returns. Based on prevailing market valuations, the top-rated balanced advantage funds shift their allocation to equity and debt instruments. Hence, when markets rise, your funds shift to debt instruments. Similarly, if the markets dip, the collected gains stay intact.

The dynamic nature of the funds primarily depends on the in-house model and strategy, which decide to move funds from one instrument to another. With dynamic asset allocation, the MF schemes eliminate any scope of human biases during investment decision making. Last but not least on the list of balanced advantage fund features is that these MF schemes put market exposure to equity derivatives to get equity tax treatment and turn to hedging when the stocks are overvalued.

Additional Read: 4 Ws of Balanced Advantage Funds

Difference between balanced and balanced advantage funds

Balanced funds vs balanced advantage funds: Which one should you choose?

When selecting the best option between balanced and balanced advantage funds, it's important to consider your financial goals and risk tolerance to make an informed decision. Here are some factors to consider:

- Risk and return: Balanced funds generally offer a fixed allocation between equity and debt, providing moderate risk and steady returns. On the other hand, balanced advantage funds adjust their allocation based on market conditions, potentially offering higher returns with varying risk levels. So, make sure to make a decision based on the level of risk you're willing to take for the expected returns.

- Expense ratio: Balanced funds typically have lower expenses because of their fixed allocation strategy. However, balanced advantage funds often have a higher expense ratio due to active management and frequent rebalancing.

- Beginner-friendly: Balanced funds are often more beginner-friendly due to their straightforward investment strategy and stable asset allocation. Balanced advantage funds, on the other hand, while offering potentially higher returns, can be more complex and suitable for investors who are comfortable with a more actively managed investment.

- Fund objective: The primary objective of balanced funds is to provide a mix of growth and income by investing in both equities and fixed-income securities. Balanced advantage funds aim to maximise returns while reducing risk by adjusting the allocation between equity and debt based on market valuations.

Over to you

While both funds have the potential to offer high returns, however, balanced advantage schemes provide better risk-adjusted returns. Thanks to their flexibility, these funds leverage market volatility to move money into bonds when markets get expensive. But balanced funds can’t lower their equity investments after a limit. So, be it capital appreciation or income generation, these funds are well-suited investment avenues for you. When looking to invest through a multi-purpose investment solution, download the Moneyfy app today.

FAQs for balanced funds vs balanced advantage funds

1. Are balanced advantage funds good?

Balanced advantage funds can be a good choice for investors seeking a flexible investment strategy that adjusts asset allocation based on market conditions. They offer the potential for higher returns with managed risk.

2. What is a balanced fund?

A balanced fund is a mutual fund that invests in a fixed ratio of equity and debt. It aims to provide a balance of growth and income with moderate risk.

3. Which is better, a multi-asset fund or a balanced advantage fund?

The choice between a multi-asset fund and a balanced advantage fund depends on your risk tolerance and investment goals. Multi-asset funds diversify across various asset classes, while balanced advantage funds adjust their allocation between equity and debt based on market conditions.

4. What is a balanced advantage fund?

A balanced advantage fund is a type of mutual fund that adjusts its allocation between equity and debt based on market conditions, aiming to maximize returns while managing risk.