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What are balanced advantage funds?

Siddhi Sharma
/ Categories: Mutual Fund
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What are balanced advantage funds?

Balanced advantage funds are the type of hybrid funds, which are also known as Dynamic asset allocation funds. These funds invest in equity as well as debt in order to provide diversification and manage the volatility of the market. These funds are actively managed by professionals; so, as compared to investing directly in the equity market, investing in these types of mutual funds is less risky. SEBI hasn’t provided any minimum cap for investing in equity & debt; so, asset management companies (AMC) decide the percentage of asset allocation in equity and debt according to the behaviour and conditions of the market. Generally, these funds invest a high percentage of investors’ capital in the equity and a lower percentage in debt. This helps these funds to be treated more like equity funds. These funds are also known as dynamic asset allocation fund; hence, the percentage of investment in equity and debt varies. 

Benefits of balanced advantage funds: 

Diversification: These funds diversify your capital invested between asset classes like equity & debt, which provides protection against market volatility. In case, equity markets aren’t performing well, the debt becomes the cushion and vice versa. 

Dynamic asset allocation: These funds’ asset allocation is changed along with the changes in the market, which provides optimal benefits to the investors. As everyone knows the general rule of earning, higher profit is to buy at a low price and sell at a high price. This seems easy to understand theoretically but quite difficult to execute for individual investors. These funds offer investors to invest their money and earn better returns as they are managed by professionals, who will invest their money according to the market volatility and suitability. 

End of emotional factors: These funds help to eliminate human biases during investment decision-making. In fact, investment decisions are made on the basis of pre-decided parameters by the fund managers. 

Returns: These funds aim to deliver returns closer to equity funds with lower volatility as well as to provide stability and regular income through exposure to debt/fixed income instruments. 

Taxability: The capital gains on balanced advantage funds are tax-based on the orientation of the fund. Equity-oriented funds will be taxed like pure equity i.e. if any short-term capital gains (STCG) arises from equity-oriented investments, it will be taxed at the rate of 15 per cent and for long-term capital gains (LTCG) arising from equity-oriented investments, it will be exempted up to Rs 1 lakh while above Rs 1 lakh, it will be taxed at the rate of 10 per cent without indexation. The debt component of the balanced advantage will be taxed at the rate of 20 per cent with indexation if it’s LTCG and as per income tax slabs, if it’s STCG. 

Some of the top-balanced advantage funds are based on the following parameters: 

Monthly SIP- Rs 10,000  

No. of years- 5  

So, total Investment- Rs 6,00,000  

Start date (for SIP) - June 1, 2016  

End date (for SIP) - June 1, 2021  

The current value of the investment is presented in the following table:  

Fund Name  

Returns (per cent)  

Expense ratio (per cent)  

Current value of investment  

ICICI Prudential Balanced Advantage Fund  

  

13.15  

1.09 

Rs 8.34 lakh  

Aditya Birla Sun Life Balanced Advantage Fund   

13.33  

0.74  

Rs 8.37 lakh  

DSP Dynamic Asset Allocation Fund  

11.93  

0.68  

Rs 8.09 lakh  

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