- Date : 07/11/2022
- Read: 4 mins
For investors looking to invest in mutual funds and have a balanced portfolio, the Balanced Advantage Fund can prove the right balance between debt and equity investments. The balance shifts as per the changing market conditions to ensure profitability for the investors.
Balanced Advantage funds: Understanding the basics
Balanced Advantage funds are a combination of debt and equity investment managed per the changing market conditions. Both forms of investment in the portfolio increase the fund's profitability.
Also read: Different types of mutual funds.
The combination of investments is managed by a fund manager who changes the balance of investments per market conditions. Supposedly the prices of financial securities are high; then, the fund manager can choose to have more debt investments in the portfolio. Choosing more debt investments will ensure that the investment value remains the same even when the prices of stocks are high. Alternatively, the manager can choose to have more equity investments in a market where prices are decreasing. More equity investments will result in profits when the market returns to normal.
The purpose behind managing the allocation of funds for both investments is to reduce the overall risk for the investor and generate high returns.
Also Read: Multi-asset allocation funds
Balanced Advantage funds: Benefits and Risks
Like all mutual funds, Balanced Advantage funds have benefits and risks associated with the investment. The investor must understand these attributes before investing in Balanced Advantage funds. The benefits and risks of investing in the funds are:
Benefits:
- When the market prices are high, the fund protects the investment value by choosing debt investments, and when the market prices are low, the fund generates profits by choosing equity investments. Thus, the funds ensure minimum risk and good profits.
- As the fund manager balances out between the investments per the market conditions, the investor needs to time the market while purchasing the mutual fund.
- Even when the market is volatile, the fund can provide stable and consistent returns, which would contribute to good overall profits.
- Balanced Advantage funds can provide tax benefits to the investor. The government taxes these funds as equity funds. The short-term capital gains will attract a tax of 15 per cent, and long-term gains would attract 10 per cent with an exemption of Rs 1 lakh.
- An investor can choose to have a systematic withdrawal plan, meaning that a certain investment will be withdrawn from the fund at regular intervals. This withdrawal can become an income for the investor.
Risks:
- The only risk involved in this form of mutual funds is that they can lead to losses if short-term investments are made. Since the funds consist of equity investments having a period of fewer than three years, the investment can lead to losses.
Balanced Advantage funds: Who should invest?
To understand whether to invest in Balanced Advantage funds, it is crucial to understand the type of investors who should be looking to invest in this form of mutual fund:
- Investors who are looking to make investments for a long period and want to earn a stable income from the mutual fund.
- Investors who can tolerate the risks (moderately high) associated with the mutual fund.
- Investors not comfortable with market volatility are looking for an investment to avoid changing market conditions.
- Investors are entering the mutual funds market looking for a combination of equity and debt instruments.
- Investors want to earn returns like equity but want a lower risk of losses.
- Investors who can hold on to the investment for at least 3 years.
Final Words
Balanced advantage funds are the right combination between debt and equity investments in the financial market. These funds are long-term investments that provide a consistent return over the years. Investors looking to avoid market volatility and earn a regular income should look for balanced advantage funds!
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
Balanced Advantage funds: Understanding the basics
Balanced Advantage funds are a combination of debt and equity investment managed per the changing market conditions. Both forms of investment in the portfolio increase the fund's profitability.
Also read: Different types of mutual funds.
The combination of investments is managed by a fund manager who changes the balance of investments per market conditions. Supposedly the prices of financial securities are high; then, the fund manager can choose to have more debt investments in the portfolio. Choosing more debt investments will ensure that the investment value remains the same even when the prices of stocks are high. Alternatively, the manager can choose to have more equity investments in a market where prices are decreasing. More equity investments will result in profits when the market returns to normal.
The purpose behind managing the allocation of funds for both investments is to reduce the overall risk for the investor and generate high returns.
Also Read: Multi-asset allocation funds
Balanced Advantage funds: Benefits and Risks
Like all mutual funds, Balanced Advantage funds have benefits and risks associated with the investment. The investor must understand these attributes before investing in Balanced Advantage funds. The benefits and risks of investing in the funds are:
Benefits:
- When the market prices are high, the fund protects the investment value by choosing debt investments, and when the market prices are low, the fund generates profits by choosing equity investments. Thus, the funds ensure minimum risk and good profits.
- As the fund manager balances out between the investments per the market conditions, the investor needs to time the market while purchasing the mutual fund.
- Even when the market is volatile, the fund can provide stable and consistent returns, which would contribute to good overall profits.
- Balanced Advantage funds can provide tax benefits to the investor. The government taxes these funds as equity funds. The short-term capital gains will attract a tax of 15 per cent, and long-term gains would attract 10 per cent with an exemption of Rs 1 lakh.
- An investor can choose to have a systematic withdrawal plan, meaning that a certain investment will be withdrawn from the fund at regular intervals. This withdrawal can become an income for the investor.
Risks:
- The only risk involved in this form of mutual funds is that they can lead to losses if short-term investments are made. Since the funds consist of equity investments having a period of fewer than three years, the investment can lead to losses.
Balanced Advantage funds: Who should invest?
To understand whether to invest in Balanced Advantage funds, it is crucial to understand the type of investors who should be looking to invest in this form of mutual fund:
- Investors who are looking to make investments for a long period and want to earn a stable income from the mutual fund.
- Investors who can tolerate the risks (moderately high) associated with the mutual fund.
- Investors not comfortable with market volatility are looking for an investment to avoid changing market conditions.
- Investors are entering the mutual funds market looking for a combination of equity and debt instruments.
- Investors want to earn returns like equity but want a lower risk of losses.
- Investors who can hold on to the investment for at least 3 years.
Final Words
Balanced advantage funds are the right combination between debt and equity investments in the financial market. These funds are long-term investments that provide a consistent return over the years. Investors looking to avoid market volatility and earn a regular income should look for balanced advantage funds!
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
