Investing can be many things — a combination of strategies, goals, income levels, and varying risk appetites. Some investors prefer stocks, some prefer bonds, while others even venture into more speculative investments. But when it comes to building a financially secure future, most experts recommend diversifying your portfolio by investing in different asset classes. Balanced advantage fund can offer such an opportunity and combine conservative assets (bond investments) and higher-risk assets (equities investments) with a single investment.
Also known as dynamic asset allocation funds, balanced advantage funds (BAFs) are hybrid mutual funds that offer exposure to the equity market while mitigating risk with debt investments. Read on to learn how a balanced advantage fund could form an important part of your portfolio and overall personal financial plan.
- Diversification with growth opportunity
Few investment strategies can provide the same level of diversification and potential growth opportunity as a balanced advantage fund. Not only does it spread out risk across multiple investments, but it also enables you to maintain a balanced exposure to both stocks and bonds at all times. This allows you to benefit from different types of opportunities – such as capital appreciation from stocks combined with steady income potential from bonds – that can help you reach your short-term or long-term financial goals through Systematic Investment Plan or other investment options.
- Balanced risk and returns
As an investor looking for stability, it’s important to consider the benefits of balanced advantage funds during economic downturns. By reducing the amount of exposure invested in stocks and allocating more assets to bonds, these funds can help protect your portfolio from large losses. A conservative investment strategy also allows you to use debt as a source of stability while waiting for market prices to rebound and investments to appreciate in value.
- Dynamic allocation to grab market opportunity
The risk associated with a balanced advantage fund is lower than picking a stock individually as it’s exposed to less volatility due to its diversification strategy between stocks and bonds. Furthermore, BAFs typically have the freedom to invest up to 80% in equity, providing them with the potential to generate substantial returns over the long run. It can include stocks from large-cap companies with stable returns, mid and small-cap stocks for growth opportunities, and debt instruments for income-producing investments. As such, investors looking for a well-rounded and balanced investment portfolio can consider investing in these funds.
- Require less monitoring
Investing in a balanced advantage fund can help you diversify your SIP mutual fund portfolio with one single investment, thus requiring minimal effort on your part. These funds are managed by professional fund managers who are responsible for selecting the right securities and maintaining the optimal asset allocation. This helps you save time and energy that would have gone into tracking profits and losses across different investments. You can use it to focus on other aspects of your financial planning.
Adding balanced advantage funds to your investment portfolio can provide several benefits, including diversification, growth potential, and risk mitigation. Also, with the technology advancements in finance and investing, it has become easier to compare and invest in these funds via digital platforms and mutual fund investment apps. However, it is equally important to assess your risk appetite, time horizon, and liabilities to ensure the fund aligns with your objectives.