The NFO from SBI Balanced Advantage Fund in September raised ₹15,000 crore – the highest by any equity-oriented fund – while Axis MF has repositioned its existing Dynamic equity fund to a balanced advantage fund. NJ MF is making its debut with a balanced advantage fund offering. Assets under management rose 62% over the last year to ₹1.41 lakh crore.
Balanced advantage funds typically invest in a mix of debt and equity. Typically, they allocate less to equities when market valuations appear expensive and vice versa. Fund managers decide equity valuations based on the trailing price-earnings (PE) ratio of Nifty 50/S&P BSE 100 and use other ratios like price to book and dividend yield to decide equity allocation.
As equities get more expensive and markets trade at all-time highs with investors unsure about the direction of the markets, financial planners are recommending investors come in through balanced advantage funds as they reduce volatility and risk. The Nifty 50 PE that stood at 17.15 on March 23 last year has risen to 26.84 and in the same period, the Price to Book value (PB) has surged from 2.17 to 4.39.
“As markets trade at all-time highs, investors not sure about the direction of the market and looking to participate in equity are moving to balanced advantage funds,” said Amol Joshi, founder, Plan Rupee. However, balanced advantage funds too come with their share of risks and are not as safe as perceived to be. “There are varied strategies used by fund houses to handle equity allocation which varies from 30-to-75%,” said Vidya Bala, founding partner, Prime Investor.
HDFC Balanced Advantage Fund, the largest fund in the category with assets of ₹42,000 crore, has an equity exposure of up to 75%.
ICICI Balanced Advantage, the second-largest, has an unhedged equity exposure of 37.2% while Edelweiss Balanced Advantage Fund which follows a pro-cyclical approach currently has an equity allocation of 60%. Most other funds in the category have an equity allocation between 30 and 55%.
Bala cautions investors using it as a safe product as these funds have given negative returns over a one-year period when markets have fallen sharply. “Investors using this category should come with a time frame of 2 years and use it to earn equity-like returns with equity taxation,” said Bala.
Joshi believes conservative investors could have about 40% of their equity allocation through such funds. He recommends a mix of ICICI Prudential Balanced Advantage Fund due to its long-standing track record and Edelweiss Balanced Advantage Fund for its pro-cyclical strategy.
