Balanced advantage funds find favour with investors amid volatility spike

Rising bond yields, uncertain equity markets add to appeal

Investors are increasingly choosing to invest in balanced advantage funds amid a spike in volatility, due to concerns around rising inflation. Experts said rising bond yields and uncertain equity markets following the sharp run-up are adding to the appeal of such funds, which dynamically change asset allocation between equity and debt depending on market conditions.

The data from Association of Mutual Funds in India (Amfi) shows that since the start of the current financial year, balanced advantage funds have seen net inflows of over Rs 29,300 crore.

In August, alone the category had seen inflows of Rs 16,571 crore. The spike in flows largely due to the success of SBI Balanced Advantage Fund new fund offer (NFO), which collected Rs 14,551 crore.

Last month, the category saw inflows of Rs 5,234 crore, which was higher than the preceding month if NFO inflows are subtracted.

Asset management firms are looking to tap this growing interest of investors in balanced advantage funds.

LIC Mutual Fund (MF) plans to launch its balanced advantage fund on October 20. Recently, Axis Mutual Fund (MF), renamed and repositioned its existing Axis Dynamic Equity Fund to Axis Balanced Advantage Fund. The scheme’s asset allocation will be guided by an in-house proprietary methodology, which allows them to manage equity exposure in response to changes in underlying market conditions.

Chandresh Nigam, MD & CEO, Axis AMC said, "As investors, we all want to invest with the confidence that our investments will not fall prey to vagaries of market volatility. Balanced advantage funds allow investors to mitigate equity risk through a structured process that manages equity exposure dynamically. We believe that balanced advantage funds will transform investing experience for investors and allow them to benefit from the long term growth potential of equity while managing its risk."

The benchmark Sensex after hitting the 60,000-mark in September has turned volatile due to a mix of domestic as well as global concerns. The 10-year bond yield on the other hand has spiked during the same period.

Jaikrishnan G, Partner and Leader, Financial Services Consulting, Grant Thornton Bharat says the growth in balanced advantage funds is triggered by three main factors - high liquidity, increased addition of first-time investors and an apprehension of market volatility from the after effect of the pandemic.

"As we see growth in first-time retail investors, who now prefer mutual funds over low-yielding traditional investments, there also exists a sense of caution given with perception of a potential market correction," added Jaikrishnan.

The data from Value Research shows that dynamic asset allocation funds have given returns of 26.62 per cent in the last one year. These funds are also called dynamic asset allocation funds. Even for the longer duration, they have managed to give double digit returns. Over a 10-year period, dynamic asset allocation funds have given returns of 11.70 per cent.

Dinesh Pangtey, Whole Time Director & Chief Executive Officer, at LIC MF said, "Equity markets are at all-time high and we believe this is the best time for investors to look at balanced advantage funds. Here, fund managers can move from equity to debt or vice-e-versa depending on the market conditions. Over the longer time frame, dynamic asset allocation funds manage to give risk-adjusted returns."