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Balanced advantage fund is the new favourite of investors. The fund category has an ability to limit volatility. The popularity reflects in its AUM, which has risen 50% in the last one year to reach Rs. 1.80 lakh crore in June 2022, shows AMFI data.
Balanced advantage funds do have merit but the returns and volatility depend a lot on fund selection. This is because BAFs are among the most actively managed funds and different fund houses have different ways of managing it.
This brings us to the most important question — how should you go about selecting a balanced advantage fund?
In a recent interview with Cafemutual, Mirae Asset MF said one of the best ways to identify the right BAF is to look at the funds' performances during the extreme phases of equity markets.
"Rather than looking at only point-to-point returns, one should look at how the funds have behaved during the extremes market conditions. This will tell you as to which funds have allocated to various asset classes as per the fund’s allocation method and true to the fund objective,"Mirae Asset believes that the BAFs are gaining popularity because it saves investors from having to take the allocation call themselves. "Behavioural biases and fear do not allow us to invest in equities during a market correction. However, not have adequate participation in equities leads to long term regret. Similarly, when the markets are high, we may ignore market risks. Doing the allocation actively and by yourself may also lead to higher tax impact. BAF may be an effective solution to get adequate equity and asset class participation without considering other factors of valuation, timing, taxation and rebalancing. BAF aims to solve all these issues," he said.
How is BAF different from other hybrid funds?
BAF is a unique offering in the hybrid space. It is the only category which has the flexibility in allocating assets to equity and debt. "The allocation is static in the case of aggressive and conservative hybrid funds while in dynamic asset allocation there is the option of rebalancing to reach the appropriate asset participation.
Disclaimer: An Investor Education and Awareness Initiative by Mirae Asset Mutual Fund
All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (RMF). For further information on KYC, RMFs and procedure to lodge a complaint in case of any grievance, you may refer the Knowledge Center section available on the website of Mirae Asset Mutual Fund.
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