The Mutual Fund Show: Is It Time To Invest In Balanced Advantage Funds?
Balanced advantage funds are hybrid funds that invest in equity and fixed income (debt), shift assets between equity, debt in a dynamic manner and have varied implicit risk.
The broader markets plunged on Wednesday, underperforming the benchmark indices, eroding investor wealth significantly amid a sell-off. But fund managers said the recent decline in small-cap and mid-cap markets is no reason for worry as long as investors focus on the long term.
The decline in BSE small-cap and mid-cap indices resulted in the erosion of Rs 6.88 lakh crore in market value on Wednesday. The Nifty Midcap 150 index closed 4.17% lower and the Nifty Smallcap 250 index fell 5.18%, their biggest fall in two years.
Suresh Soni, CEO, Baroda BNP Paribas AMC, said small- and mid-cap companies offer great wealth creation opportunities over the long term. "Inherently the growth rate of these companies are slightly faster than the large cap companies," he said on The Mutual Fund Show, adding: "Anybody who has a long term perspective should not worry."
He, however, had a word of caution. "Investors should be careful about investing in those stocks, but they don't need to worry about the entire stock market."
He listed the key features of balanced advantage funds. They:
Are hybrid funds that invest in equity and fixed income (debt).
Shift assets between equity, debt in a dynamic manner.
Have varied implicit risk because of different strategies.
Soni said such funds offer these advantages:
Market fluctuations are less of a concern.
Funds are tailored to navigate the ups and downs.
Offer enhanced risk management and growth prospects
'Stay Invested'
Nisreen Mamaji, CFP, Founder, MoneyWorks FS, echoed Soni. She said that for longer term investors who have a certain goal in mind, it's better to stay invested and let the fund manager perform asset allocation in multi-cap and flexi-cap funds.
"Consider opting for arbitrage funds for short-term investments instead of traditional fixed income options, Mamaji said, adding that for 1-3 year horizon, balanced advantage funds, with equity, arbitrage, and bonds, could be suitable. "Check asset allocation before investing."
Referring to the market regulator's recent directive to fund managers, asking them to proactively protect investor interest, Suresh Sadagopan, MD and principal officer of Ladder7 Wealth Planners, said: "I really feel that the froth has been building up for some time, which SEBI has correctly flagged now."
The timing of withdrawing money, according to Sadagopan, remains uncertain. However, if the asset allocation strategy is currently unbalanced, one could contemplate rebalancing and reallocating funds into the suitable categories, he said.
Balanced advantage funds suit those seeking low-risk investments, professional management, and dynamic market-based positioning for their portfolios, Sadagopan said.
