Mutual fund investments are undertaken in varied asset classes. Investors decide the asset class as per the scheme’s particulars and their goals. The various categories of investments with respect to mutual funds include:
- Equity investment, in the stocks of publicly listed companies.
- Debt investment, in fixed-income products, such as treasury bills and corporate bonds.
- Hybrid investment or balanced fund, in the pre-decided ratio of equity and debt instruments.
Another class of mutual funds is the balanced advantage mutual fund or the dynamic asset allocation funds. Under this type of mutual fund, the investments are dynamically made in both equity and debt instruments – as per the market movements, the investment is shifted from equity to debt and vice versa. A balanced mutual fund or hybrid fund is quite different from a balanced advantage mutual fund. In a balanced fund, the investment of the fund is also done in both equity and debt but in a pre-decided ratio, and the same is not rebalanced from time to time as per the market trends.
Benefits of balanced advantage mutual funds:
- These mutual funds are actively rebalanced by the fund managers as per the market scenario.
- As per the market conditions and movements, constant research keeps going on and this in-depth analysis enables a fund manager to adjust the risk exposure in risky sectors to relatively safer assets.
- One of the major benefits of this mutual fund is a greater degree of diversification.
- Here the diversification is expanded from sector-wise to different categories of investments, ranging from highly volatile equity to almost risk-free money market instruments.
- These funds try to generate higher returns from equity and equity-linked instruments for capital appreciation while hedging risk by investing in fixed-income securities for capital protection.
Focused investment objectives:
- The objective of these mutual funds is to generate returns while keeping risks in check.
- This approach requires fund managers to rebalance portfolios as per market conditions. This entails an active style of fund management to achieve returns with safer investments.
Disadvantages of balanced advantage mutual funds
- Complicated taxations: Balanced advantage mutual funds are taxed as equity funds when the portion of equity investment (above 65%) of the fund is on the higher side. When the investment of the fund remains in the debt market in a greater ratio, the taxation shifts to that of a debt fund.
- Long-term investments: Balanced advantage mutual funds require a relatively long investment horizon to generate better returns on the funds. Though a long-term investment is not much of a hassle, it may not be suitable for all investors.
Factors to consider before choosing balanced advantage mutual funds:
Besides the ease of investment, like booking MF online and availability of details of the fund’s track record of performance, there are two other major factors, you should consider while choosing a balanced advantage fund:
- Degree of risk
Each Investor has a different risk appetite. Your willingness and ability to take risks should define the instruments you invest in. If you prefer to take a higher degree of risk to generate better returns from the market, you may want to consider other types of mutual funds. You can choose from various available MF online, do a comparative study and invest in an ideal fit. If you do not wish to take higher risks and just wish to generate somewhat higher returns from fixed deposit rates, you should choose balanced advantage mutual funds. Ideal investors are retirees and young professionals.
- Investment horizon
These investments should generally be undertaken for a longer time frame, so if you have a short investment horizon, you may not want to consider this type of fund.
All mutual fund investments have their own features and individual risk parameters. You should look at the available investment options in a holistic manner. As per your own investment goals and objectives, you should decide on the kind of investments to add to your portfolio.