When it comes to investing, it is a known fact that none of the asset class tends move in a straight line, either up or down. Especially, when it comes to equities, the volatility is more pronounced. The challenge here is for new/ initial investors who are averse to the typical market volatility encountered almost on a daily basis. How then do such investors, who have traditionally enjoyed the safety of traditional investment avenues, navigate market volatility? As a means to address this dilemma, the mutual industry has come up with Balanced Advantage category of Schemes.
What is Balanced Advantage category of Schemes?
This category of mutual fund schemes gives investors the opportunity to diversify their investments across equity as well as debt, within a single Scheme. Diversification across these assets not only lends stability to your portfolio but helps generate better risk adjusted returns.
Auto-rebalancing mechanism
A significant uptrend or a downtrend in any one asset class can disturb one’s asset allocation. For determining market valuation, such schemes use various valuation benchmarks such as Price to Book Value (P/BV), Price to Earnings (P/E), Dividend Yield etc.
Relevance in current market
At a time when the markets have turned volatile at higher levels, these schemes are more relevant. Investing in such a scheme ensures that while asset allocation is maintained, the downside risk is limited. Therefore, one can consider lump sum investment into such a scheme compared to staggered investments that one would make into a pure equity fund.
Best suited for…
These schemes are suited for investors across varied risk appetite, especially the ones who prefer to stay away from the equity market solely because of market volatility. This type of scheme offers stability to your portfolio by aiming to protect the investor from market volatility.
One name that stands out is ICICI Prudential managed Balanced Advantage Fund. This fund is considered a pioneer in its category. It is also the oldest among dynamically managed asset allocation schemes. The model which is used to decide on this Scheme’s equity allocation is a decade old and is time tested. Most of the schemes existing in this category has been launched within the past couple of years, especially post SEBI’s re-categorization exercise.
Ashwani Gupta of Money Mantra