Nowadays, Balanced Advantage fund is very much discussed. Most investment advisors are giving investment advice in this. Whenever there is a big jump in the stock market, then there is talk of correction after that. In such volatile times, the discussion about investing in Balanced Advantage Fund intensifies. Balanced Advantage Fund is also known as Dynamic Equity Asset Allocation Fund. Can it give high returns to investors with less risk?
How does Balanced Advantage Fund work?
What is a Balanced Advantage Fund and how does it work? Actually Balanced Advantage Fund is a type of hybrid mutual fund, which can invest in both debt and equity schemes. Balanced Advantage Fund tries to maintain 65 per cent equity exposure. These are taxable as equity funds. This tax rate is 15 percent. If you redeem this fund within a year, then you have to pay capital gains tax of 15 percent. Capital gains above Rs 1 lakh are taxed at 10%.
Balanced advantage funds use derivatives such as futures and options to reduce unhedged equity exposure. Balanced advantage funds generate returns for the investors through stock selection and asset allocation. Fund managers often shift investments between equity and debt at the right time. This reduces the risk of the investor.
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How effective is investing in Balanced Advantage Funds?
Balanced Advantage Funds keep on increasing the allocation between equity and fixed income (bonds). These funds invest more money in bonds when the share price in the market is higher than necessary. At the same time, when the prices fall, they withdraw money from bonds and invest in stocks. The equity portion in the portfolio of these schemes usually ranges between 30 per cent and 80 per cent. Some funds invest more than this limit in equities i.e. stocks.
There are some good balanced advantage funds available in the market. Aditya Birla Sunlife Advantage Fund, ICICI Prudential Balanced Advantage Fund and Invesco India Dynamic fund, HDFC Balanced fund are some of the funds in which one can invest after consulting a financial advisor. Risk-averse investors may like it, but it may disappoint those hoping for bumper returns. Some financial advisors recommend investing in Hybrid Equity Funds or Pure Balanced Funds. Asset allocation in such schemes is fixed within a limited range. Their sub-categories include Aggressive, Balanced and Conservative.
(This article is for information only. Before making any investment-related decision, please consult your advisor.)
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