Understanding Effective Balanced Advantage Fund

There are two main elements to investing in the boarder sense – there are elements that help you appreciate your capital and ones that help you protect your capital. The allocation of these elements in your portfolio is dependent upon your risk appetite and goals. For instance, if your goal is to aggressively appreciate your capital, you may choose such elements.

But for the novice or average investors, a perfect balance is often the most desirable quality of a successful portfolio. That means a portfolio that can appreciate your capital and, at the same time, protect it. Let us learn more about a balanced portfolio and look at the ways you can achieve the same. 

How is portfolio balance achieved?

There are many securities to choose from when you are planning mutual fund investment. Of which, equities are known to have a higher potential for growth. At the same time, they carry a higher risk as well. On the other hand, debt securities are known to give a fixed return. But the potential for return may be smaller compared to equities but the risk associated with them is much lesser. At times, it is even equal to zero.

Here, more aggressive investors tend to choose more equity presence in their portfolio while investors who want to park their fund safely tend to choose debt instruments. A balanced portfolio is one which has the presence of to balance the risk-return ratio. In simpler terms, it is a fund where there is ample chance for growth and at the same time, protection from market risks.

What is a balanced advantage fund?

Manually achieving a balanced portfolio is a herculean task. It could even become a full-time job for you. Instead, you may choose to invest in a balanced advantage fund.

We have discussed the balance factor in a portfolio. A balanced advantage fund tries to achieve just that. Here, the fund manager will create such a portfolio that there is enough equity and debt presence that both capital appreciation and capital protection are taken care of. But just adding 50% equity and 50% debt will not do the trick. That is why the fund manager will use their expertise to create a balanced ratio mix. Below are a few factors about the balanced advantage fund that may help you with your decision.

  • There can be the presence of other securities in a balanced advantage fund too. That means the portfolio presence is not limited to just equities and debts. Hence, it is a good idea to closely read the portfolio of a fund before you invest.
  • These funds are usually dynamic. That means the portfolio will be changed according to the market conditions. For instance, if the market is bullish the fund manager may choose to add more equities to make the most out of the situation while if the market is bearish, the manager may shift to more debt instruments to safeguard the fund. This helps you get the best out of the manager’s expertise. At the same time, this reduces your say over your investment as well. This feature is either an advantage or a disadvantage according to your investment preferences.
  • Balanced advantage funds tend to have a higher expense ratio compared to other funds. The expense ratio is charged by the funds to pay the fund managers and for the upkeep of the fund. Since the fund manager’s work could be more here compared to a regular fund, they need to be paid better as well. Because of this, the expense ratio may be higher.

Balanced advantage funds provide a good opportunity for new investors to get the best out of stock markets. But ensure you do your research to make sure the fund best fits your goals.