Financial Planning: The Indian economy is improving faster than expected. This is evidenced by high consumption of fuel and electricity, stabilization or increase in freight, and improvement in the sale of medium and heavy commercial vehicles (MH&CV). Apart from this, with improved economic data, the corporate world has made a better comeback from the lockdown period. With the expansion of margins, their sales have increased and due to the low base, there can be startling figures in earnings. FII investment will remain strong even after the global interest rates are very low and the printing of notes by central banks, because they want better returns. In this way, the steady cash coming in, strong economic data and better corporate profits will keep the markets strong. But inflation can be a buoyancy risk.
The coronavirus epidemic has hit the unorganized sector, which has some role in every value chain of the entire industry. Supply has come to a halt, as many businesses in the unorganized sector have been affected by the slowdown. The inability of the supply chain to keep pace with demand may increase inflationary pressures. Because, given the weak global economic scenario, central banks may ideally hesitate to raise interest rates instead of showing more activity.
Balanced Advantage Funds are a better option for investors
In such a situation, the Balanced Advantage Fund seems to be a better option for investors. It is a fund that manages allocation in the equity and debt segments in a balanced manner. It adopts the ‘buy low and sell high’ model to create wealth in the long term. Adopting a model-based approach helps to rebalance between equity and fixed income by investing naturally and saving taxes. In this, investors also do not need to monitor themselves.
Generally, the allocation of assets varies according to the changing economic conditions in other mutual fund categories like equity funds. But Balanced Advantage Funds follow their own path and do not go beyond the limit set in the investment target. While investing in a Balanced Advantage Fund, an investor should keep in mind the risks, returns, costs, investment limits, financial goals, tax on returns etc.
Benefits of Balanced Advantage Funds
- The asset allocation model adopted by the Balanced Advantage Fund is of a cyclical nature. When the market climbs, it reduces investment in equity and vice versa. The assets of such funds are managed actively between equity and debt. But the investor gets the benefit of buying this fund at a low price and selling at a high price.
- 2. It takes care of the asset allocation needs of an individual.
- 3. Investors can also opt for SIP option to invest in a Balanced Advantage Fund to achieve long term goals like children’s education, marriage or retirement needs.
These funds are ideal for the emerging generation of professionals and entrepreneurs, who do not want to be tied to any traditional career. It is also better for people who are young and do not want to adopt the traditional attitude nor do they want any risk on their investment fund. Investors who like smart way about actively managing their investments to maximize their returns. For such investors who are looking for tax saving investments.
For retirement goals
Asset Allocation: Asset allocation has its own merit. This is something that does not take time to get good results for your investment and it is a category in which this quality is done naturally.
Discipline: It develops a sense of discipline within the investors. You have to allocate your assets in the higher and lower cycles of the market. In this, the allocation of equity and fixed income keeps reset naturally and thus helps to maintain discipline.
Protection from fluctuations: Investors who want low volatility, often choose balanced funds. Because you make income from the allocation of bonds for a portfolio. Bonds provide a more stable return and usually do not face much volatility like stocks.
Better Returns: Balanced Advantage funds help you achieve better returns per unit risk (which you are taking in an investment). Since we do not have enough time as an investor to keep an eye on the markets, Balanced Advantage Fund helps us to get better returns per unit risk.
Equity-like tax benefit: Investors invest in a single equity fund or a fixed income instrument and invest in it or go out, it is better to choose a balanced advantage fund that also saves tax. This is a category that has been designed in such a way that it provides tax benefits similar to equity funds.
(Author: Anirudh Saha, Senior Fund Manager (Equities), PGIM India Mutual Fund. These are personal views of the author.)