What are Balanced Advantage Funds (BAF) & How to Invest in Them?
Balanced Advantage Funds dynamically adjust their asset allocation between equities, debt, and cash, based on market conditions. In this blog, we’ll take a closer look at how Balanced Advantage Funds work, which balanced advantage fund is best, their advantages and disadvantages, and how to select the right fund for your investment needs.
What is a Balanced Advantage Fund?
Balanced advantage funds, also known as dynamic asset allocation funds, are a category of Hybrid Funds. They invest in a dynamically balanced portfolio of equity, equity-related securities, debt and money market securities.
A professional fund manager manages the fund. The manager invests in equity, equity-related securities, debt, and money market instruments while managing risk through active allocation. The specific asset allocation of the top balanced mutual funds can vary over time, making it suitable for investors seeking a dynamic and actively managed investment strategy. This flexibility can help mitigate risks and potentially enhance returns compared to fixed allocation funds. Check out the list of the top dynamic asset allocation funds here!
What is Balance Advantage Fund Asset Allocation?
Here is a general guideline for the asset allocation of a balanced advantage fund:
- Equity: These funds invest a portion of their assets in equities, which can range from 65% to 100%. The equity allocation provides the potential for capital appreciation and higher returns.
- Debt: The remaining portion of the portfolio can be invested in debt securities, which can include types of bonds such as government bonds, corporate bonds, money market instruments, and other fixed-income securities. The minimum and maximum ranges of debt allocation can vary in different AMCs.
- Cash or Cash Equivalents: In some cases, these funds may also hold a small percentage in cash or cash equivalents to meet liquidity requirements or take advantage of opportunities in the stock market.
Top Balanced Advantage Funds Based on 5-Yr CAGR
Here’s a list of the top 10 balanced advantage funds based on their 5-yr CAGR:
| Fund Name | Fund Size (Rs. in Cr) | Expense Ratio (%) | CAGR 5Y (%) |
|---|---|---|---|
| HDFC Balanced Advantage Fund | 95,386.23 | 0.75 | 20.48 |
| Baroda BNP Paribas Balanced Advantage Fund | 4,220.83 | 0.77 | 16.46 |
| Tata Balanced Adv Fund | 10,217.18 | 0.42 | 14.29 |
| Aditya Birla SL Balanced Advantage Fund | 7,305.25 | 0.72 | 13.51 |
| Nippon India Balanced Advantage Fund | 8,757.84 | 0.57 | 13.48 |
| ICICI Pru Balanced Advantage Fund | 60,434.09 | 0.91 | 13.32 |
| Axis Balanced Advantage Fund | 2,633.81 | 0.82 | 13.31 |
| Kotak Balanced Advantage Fund | 16,937.25 | 0.58 | 12.84 |
| Union Balanced Advantage Fund | 1,430.59 | 0.91 | 12.55 |
| HSBC Balanced Advantage Fund | 1,528.25 | 0.76 | 11.94 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on the balanced advantage funds in India in the list is from 6th February 2025. However, for real-time updates on share price and market trends, visit the Tickertape Mutual Funds Screener today!
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
How Does a Balanced Advantage Fund Work?
Balanced Advantage Funds (BAFs) work by dynamically allocating assets between equity and debt instruments based on market conditions. These funds use a quantitative approach to invest in a mix of equity, debt, and other assets. The objective of BAF funds is to provide investors with an asset balance between capital appreciation and downside protection.
The fund will actively adjust its equity and debt allocations with the aim of reducing risk and enhancing returns for long-term investors. The proportion of equity holdings will be guided by the fund manager’s assessment of the domestic economy, global developments, market conditions, and valuation metrics—such as Price to Earnings (PE), Price to Book Value (P/B), and Earnings Yield—as well as momentum and interest rate indicators like the 10-year gilt yield and 1-year Treasury bill yields.
How to Select the Right Balanced Advantage Fund?
Here are some factors to consider when selecting the right & best dynamic asset allocation fund.
- Historical Performance: Investors can analyse the performance over the past few years and analyse how it has performed in various market conditions. The best performing balanced advantage fund with a consistent track record of delivering stable returns can be a good choice.
- Fund Manager’s Track Record: The fund manager’s expertise and experience can have a significant impact on the fund’s performance. Therefore, investors can look for a fund manager with a proven track record of managing balanced advantage funds.
- Expense Ratio: The expense ratio is the fee charged by the fund house for managing the fund. A lower expense ratio means higher returns for the investor.
- Fund Size and Liquidity: You can consider the fund’s size and liquidity to ensure that the fund can handle inflows and outflows efficiently. A larger fund size may lead to reduced flexibility, while a smaller fund may face liquidity issues.
Who Should Invest in a Balanced Advantage Fund?
Balanced advantage mutual funds can be suitable for a wide range of investors. These investors can be grouped into the following factors;
Investor’s Risk Tolerance
Balanced advantage funds are suitable for investors who are willing to take moderate risks. These funds invest in a mix of equity and debt instruments, which provides a balance between potential returns and risks.
Investment Horizon
Investors with a long-term investment horizon may consider investing in balanced advantage funds as balanced mutual funds can be a balanced mix of equity and debt instruments, which can help provide stability to the portfolio over the long run.
How to Invest in the Balanced Advantage Funds?
Investing in balanced advantage mutual funds is straightforward:
- Open a Demat Account: Investors need to have a demat account in order to invest in balanced advantage funds. You can open a demat account with smallcase.
- Identify a Fund: Evaluate the top-performing Balanced Advantage Funds by analysing past returns, expense ratios, and the fund manager’s expertise. However, it must be noted that past performance does not guarantee future results. Investors can utilise the Tickertape Mutual Funds Screener to sort through different balanced advantage funds using the 200+ filters available.
- Choose an Investment Mode: Choose a lump sum or a systematic investment plan (SIP) based on your financial goals.
- Complete KYC: Submit your KYC details, including your PAN number and bank details, to finalise your investment.
Note: It is important to conduct thorough research and consult a financial advisor before investing in anything.
Investing in balanced advantage funds via smallcase
You can also invest in balanced advantage funds via smallcase. Go to smallcase.com or the smallcase app, and login via your phone number. Then, go to ‘Discover‘ and enter the name of the specific balanced advantage fund in the search bar and hit enter. You’ll find the mutual fund’s performance and the minimum investment amount. Decide the particular amount you want to invest based on your financial goals, and click ‘Invest Now’ to start investing!
Advantages of Investing in a Balanced Advantage Fund
Investing in the best dynamic asset allocation fund provides a lot of advantages to investors. Some of them are as follows:
- Dynamic Asset Allocation: The effective balanced advantage funds provide investors with the flexibility to switch their investments between equity and debt instruments based on market conditions. This ensures optimal allocation of funds and may potentially result in better returns.
- Hedging Against Market Volatility: These funds offer downside protection by automatically reducing exposure to equities during market downturns, which can help minimise losses and volatility.
- Potential for Higher Returns: Balanced advantage funds have the potential to generate higher returns than traditional fixed-income investments while also offering lower volatility than pure equity investments.
- Diversification Across Asset Classes: These funds invest in a mix of equities, debt, and other assets, which helps spread risk across various asset classes and reduces overall portfolio risk.
Disadvantages of Investing in a Balanced Advantage Fund
Like any other investment, balanced advantage funds also come with their set of disadvantages. Some of these are:
- Higher Expense Ratio: Balanced advantage funds can have a higher expense ratio compared to pure equity funds. This is because these funds employ a dynamic asset allocation strategy, which requires active management and therefore higher costs.
- Limited Downside Protection: Although balanced advantage funds aim to provide some downside protection, they are not immune to market fluctuations. During a severe market downturn, these funds can also witness a decline in their NAV.
- Performance Depends on the Fund Manager’s Skill: The performance of BAFs is largely dependent on the skill and experience of the fund manager. A fund manager who does not make the right calls in terms of asset allocation and portfolio construction can result in lower returns for investors.
To Wrap It Up…
Balance advantage funds can be a suitable investment option to build a diversified portfolio with dynamic asset allocation and hedging strategies. However, investors must carefully assess their risk profile, investment horizon, and financial goals before investing in a balanced advantage fund. Additionally, it is essential to consider factors like historical performance, fund manager’s track record, expense ratio, fund size, and liquidity while selecting the right fund.
Frequently Asked Questions About Balanced Advantage Funds
The top 5 balanced advantage funds sorted according to their 5-yr CAGR include:
1. HDFC Balanced Advantage Fund
2. Baroda BNP Paribas Balanced Advantage Fund
3. Tata Balanced Adv Fund
4. Aditya Birla SL Balanced Advantage Fund
5. Nippon India Balanced Advantage Fund
Note: These funds have been listed for educational purposes and are not meant to be recommendatory. This list of balanced advantage funds were sorted according to their 5-yr CAGR on 6th February 2025.
Yes, balanced advantage funds in India are regulated by the Securities and Exchange Board of India (SEBI), which sets rules and guidelines for their operations.
Balanced advantage funds can be a good investment for the long term. They offer a mix of equity and debt exposure, which can help to reduce volatility and provide a smoother ride for investors. Balance funds can also generate attractive returns over the long term. However, investors should always conduct their own research and/or consult a financial advisor before making long term investments.
Yes, balanced advantage funds are taxable, especially capital gains and dividends.
Dynamic asset allocation funds are also known as balanced advantage funds. They are investment funds that adjust their asset allocations based on market conditions, aiming to maximise returns while managing risk.
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