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As an Indian investor, balancing a desire for portfolio growth with the need to protect your capital remains a constant challenge. Market uncertainty continues to dominate, making wise investment choices more important than ever. Balanced advantage funds (BAFs) present a solution worth careful consideration in 2024, especially if you crave the stability that comes with a well-diversified portfolio.

Let’s explore what BAFs are and why you should consider adding them to your portfolio.

What are balanced advantage funds?

Also known as dynamic asset allocation funds, BAFs invest in a combination of equity (stocks) and debt (bonds). Their distinctive feature lies in the adaptability of asset allocation. Unlike traditional balanced funds that maintain fixed ratios between equity and debt, BAF fund managers can manoeuvre allocations based on market conditions. This means the fund can increase equity exposure during bull markets to gain from growth and shift towards debt when volatility strikes, minimising risk.

benefits of balanced advantage funds in 2024

Key advantages of balanced advantage funds

The pursuit of consistent returns: Due to their debt component, balanced mutual funds typically experience less volatility compared to pure equity funds. This means you could still generate growth over time, but with the debt acting as a buffer during market downturns.

Strategic asset allocation: In 2024, markets are likely to exhibit swings rather than linear upward trends. Fund managers of BAF employ models and insights to adjust the equity-debt mix constantly. It means they are working relentlessly to maximise gains when good opportunities arise and protect their capital when markets become harsh.

Tax efficiency: Indian tax laws provide an advantage to equity funds. Smartly managed BAFs often maintain an above 65% equity position to gain this favourable tax status. However, they also utilise clever hedging and arbitrage strategies to offset risks further – a two-pronged approach that can boost your potential after-tax returns.

Mitigating portfolio risk: One crucial aspect of successful investing is the distribution of funds across different asset classes. BAFs provide this built-in diversification by holding both stocks and bonds. Essentially, your risk is less concentrated than it would be if you were to purchase standalone equity or debt instruments.

Suitable for a range of investors: Investors new to markets may have lower risk tolerance and less time to research specific stocks. BAFs eliminate a hefty chunk of that homework while providing exposure to multiple assets. Experienced investors too may find BAFs appealing, as they can be an efficient way to diversify a larger portfolio for stability and a tax-smart angle.

A smart choice for 2024

With the markets remaining prone to unexpected shifts in 2024, balanced advantage fund growths provide a solution for navigating these changing tides.

They offer growth potential, mitigate risk through diversification, and are generally more tax-favourable than other alternatives. A balanced advantage fund may be an excellent tool for your portfolio if you are searching for a balance of reliable returns and capital protection.

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