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What are Balanced Advantage Funds (BAF) & How to Invest in Them?

What are Balanced Advantage Funds (BAF) & How to Invest in Them?
Reading Time: 10 minutes

Are you looking for a mutual fund that can help you navigate market volatility while potentially providing higher returns? Look no further than Balanced Advantage Funds! These funds dynamically adjust their asset allocation between equities, debt, and cash, based on market conditions, offering investors the best of both worlds. 

In this blog, we’ll take a closer look at how Balanced Advantage Funds work, 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 the best Hybrid Funds. They aim to strike a balance between equity and debt investments based on market conditions and the fund manager’s discretion. 

The fund is managed by a professional fund manager.  Has the freedom to shift between asset classes like stocks and bonds to capitalize on market opportunities or manage risk. The specific asset allocation of a balanced advantage fund can vary over time, making them 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. 

What is Balance Advantage Fund Asset Allocation?

Here is a general guideline for the asset allocation of the best balanced advantage investment:

  • Equity: These funds invest a portion of their assets in equities, which can range from 30% to 80% or more of the total portfolio. The equity allocation provides the potential for capital appreciation and higher returns.
  • Debt: The remaining portion of the portfolio is invested in debt securities, which can include types of bonds such as government bonds, corporate bonds, money market instruments, and other fixed-income securities. This debt allocation helps provide stability and income to the fund.
  • 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 For You to Invest in 2023

Here’s the list of 10 best balanced advantage funds:

 Balanced Advantage FundFund Size (in Cr)
HDFC Balanced Advantage Fund Direct Plan-Growth₹61,599
Edelweiss Balanced Advantage Fund Direct Growth₹ 9,395
ICICI Prudential Balanced Advantage Fund Direct Plan Growth₹49,102 
Motilal Oswal Balance Advantage Fund Direct-Growth₹ 735
Sundaram Balanced Advantage Fund Direct Growth ₹ 1,533
Aditya Birla Sun Life Balanced Advantage Fund₹ 6,795
Nippon India Balanced Advantage Fund₹6,957
Kotak Balanced Advantage Fund Direct Growth ₹15,050
Union Balanced Advantage Fund₹1600 
Bandhan Balanced Advantage Growth₹2,355

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 BAFs is to provide investors with a asset balance between capital appreciation and downside protection.

The fund managers of balanced advantage funds use various valuation metrics, such as the PE ratio (Price to Earnings), P/B Ratio (Price to Book ratio), and dividend yield, to determine the market valuation of equities. Based on these metrics, they allocate assets to equity or debt instruments to maintain an optimum asset allocation ratio. For instance, if the equity market is undervalued, the fund manager will increase the indexed allocation towards equities, and if the market is overvalued, the allocation towards debt instruments will be increased.

Overall, the best balanced mutual funds can provide investors with a balanced approach to investing in the equity and debt markets, and are a suitable option for investors looking for a mix of capital appreciation and downside protection. 

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: Analyze the fund’s performance over the past few years. And analyze how it has performed in various market conditions. A 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, 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. Hence, it is essential to choose a fund with a lower expense ratio.
  • Fund size and liquidity: 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.

Additionally, you can also select the best balanced advantage fund monthly dividend.

Who Should Invest in a Balanced Advantage Fund?

Balanced advantage mutual funds are suitable for a wide range of investors, including;

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 who have a long-term investment horizon may consider investing in balanced advantage funds. These funds invest in a mix of equity and debt instruments, which helps to provide stability to the portfolio over the long run.

Financial goals

Balanced advantage funds can be suitable for investors who have long-term financial goals. For instance, retirement planning, children’s education, or buying a house. These funds can help investors achieve their financial goals by providing a balanced mix of potential returns and risks.

How to Invest in Balanced Funds?

Investing in balanced funds, also known as hybrid funds, is a straightforward process. Start by selecting a balanced fund that aligns with your financial goals and risk tolerance.  Next, open an account with a mutual fund company or a brokerage platform if you don’t have one already. Then, decide how much you want to invest and choose the investment mode—either a lump sum or through a Systematic Investment Plan (SIP).

Afterwards, simply fill out the necessary paperwork, provide your KYC (Know Your Customer) documents, and make the investment. The fund manager will take care of the asset allocation between stocks and bonds, ensuring a balanced approach to grow your investment over time. Remember, it’s always a good idea to consult with a financial advisor if you’re uncertain about which Balanced Fund suits your needs best. 

What’s the Return on Investment?

Balanced advantage fund returns can be quite attractive for investors looking for steady returns with lower volatility. The dynamic asset allocation strategy of BAFs helps in achieving this goal. 

However, the returns depend on various factors, including the fund manager’s investment decisions, market conditions, and economic factors. In general, the best dynamic asset allocation funds have provided returns ranging from 8% to 12% in the long term, depending on the market cycle and fund performance.

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: 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 minimize 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

Yes, like any other investment, balanced advantage funds also come with their own set of disadvantages. Some of these are:

  • Higher Expense Ratio: Balanced Advantage Funds 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.

Want to Invest in a Stock Portfolio like a BAF?

Well, if you are interested in investing in a stock portfolio that is as dynamic as a BAF then we have got you covered. Because All Weather Investing smallcase could just be what you are looking for!

All Weather Investing

The All-Weather Investing smallcase is a portfolio of stocks and ETFs that was built to perform well in all types of market conditions. Whether it’s a boom or a recession phase, this smallcase was designed to provide a diversified portfolio with a blend of different asset classes, including equity, debt, and gold, to generate stable returns over the long term.

All Weather Investing smallcase by Windmill Capital

This smallcase was created by Windmill Capital and gets rebalanced periodically based on market conditions and economic factors.

To Wrap It Up…

Balanced Advanatge Funds can be an excellent investment option for you to build a diversified portfolio with dynamic asset allocation and hedging strategies. It offers the potential for higher returns while managing market volatility and downside risk. 

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.


1. What is the top 5 balanced advantage fund in India 2023?

The top 5 balanced advantage funds include HDFC Balanced Advantage Fund, Edelweiss Balanced Advantage Fund Direct Growth, ICICI Prudential Balanced Advantage Fund, and Motilal Oswal Balance Advantage Fund Direct-Growth. 

2. Are there rules for balanced advantage funds?

There is no such hard and fast rule. However, it is advisable that balanced advantage funds must invest at least 65% of their assets in equity and at least 35% of their assets in debt.

3. Are balanced advantage funds good for the long-term?

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. Balanced advantage funds can also generate attractive returns over the long term.

4. Is a Balanced Advantage fund taxable?

Yes, balanced advantage funds are taxable, especially capital gains and dividends. 

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