15 Best Balanced Advantage Mutual Funds in 2022

Mutual funds

Balanced advantage funds (BAFs) are hybrid mutual funds that invest in equity and debt instruments. They are also known as dynamic asset allocation funds as these funds are dynamically managed based on prevailing stock market conditions. In other words, the asset allocation is decided by fund managers based on market conditions to give optimal returns and mitigate risk.

We have curated a list of 15 best balanced advantage or dynamic asset allocation funds that you could consider investing in.

15 Top Balanced Advantage Funds 

With a rebalancing strategy, balanced advantage funds sell stocks at times of high valuations and do the opposite as the market falls. An investor can manage the market volatility smoothly with such a conservative, effective and quick market strategy. Go through the chart below to know about some top-performing mutual funds!

*Note: Returns data as on September 21, 2022 

**This table is for illustrative purposes only.

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Disclaimer: Mutual fund investments are subject to market risk, read all scheme related documents carefully.

What are Balanced Advantage Funds?

A balanced advantage fund or dynamic asset allocation fund is a type of hybrid mutual fund which invests in a mix of debt and equity instruments. There is no limitation on asset allocations, implying that SEBI has not set any maximum or minimum exposure threshold on allocation to specific assets. 

It is prerogative of fund managers to decide asset allocation as per prevailing market conditions. If the stock markets are enjoying a bull run, managers will increase the allocation in equity to take advantage of rising share prices. On the other hand, if stock markets are falling, managers may pull out some investments to reduce losses. 

These funds have the potential to offer dual benefits of high returns and stable income. As these funds have dynamic allocation in various asset classes, they are also called dynamic allocation funds.  

Also Read: 5 Things To Keep In Mind Before Investing In Mutual Funds

Benefits of Balanced Advantage Funds 

BAFs are one of the best mutual funds in India as it functions to restrict losses when the stock market dips. Besides, investors experience the optimum advantages of both asset classes ─ equity and debt. Know about some other benefits below!

• Performing asset classes may help to recover the returns of underperforming instruments. 
• Portfolio risk gets diversified through investment across various asset classes.
• This scheme sells and buys assets on the basis of valuations. Based on the investment strategy, it may buy assets that can be fairly valued and sell assets whose valuations are high. 

Things to Consider Before Investing in Balanced Advantage Funds

Here are some factors that you should consider before investing in a balanced fund:

• Investment horizon

These funds have the potential to generate high returns in the long term. Investors must analyse their individual investment horizons before taking any decision to invest in such schemes. Individuals having surplus money which they can park in these plans for 5-8 years, can expect a substantial return on their investments.    

• Risk appetite

Every individual should consider their risk tolerance level before investing in these schemes. A balanced advantage fund invests in a mix of equity and debt instruments. Mutual fund schemes having higher exposure towards equities will have a higher risk. Whereas funds having higher exposure towards debt will come with lower risk. 

Therefore, if you have a high-risk appetite and want aggressive returns, you can put your money in balanced schemes having a higher proportion of exposure towards equities. However, if you are a conservative investor, you can invest in debt-heavy balanced funds. 

• Expense ratio

It is the cost charged by fund houses to cover their operating expenses. This includes fund manager’s fees, distribution costs, administrative expenses, etc. It is a percentage charge levied on the NAV. As these charges affect net profitability from mutual fund schemes, you should do a thorough market analysis and choose a fund which comes with a low expense ratio. 

• Past performance of Fund Manager

All decisions taken by a fund manager determine the profitability of a fund. You should analyse the past performance of the respective fund manager to get an idea about their expertise and objectives.

Taxation of Balanced Advantage Funds 

Fund managers design balanced advantage funds as a tax dodge. These schemes invest around 30%-40% in debt and equity each, with the residual in arbitrage. This arbitrage part provides dual benefits. It offers similar returns as liquid funds and with equity, it ensures equity-like tax implications.    

Equity mutual funds can fetch long-term capital gains if the units are held for above 1 year. The tax rate is 10% in this case. If these gains do not exceed Rs. 1 lakh, then they are tax-free. On the other hand, debt mutual funds can obtain long-term capital gains if the units are held for more than 3 years. Thereafter, the tax rate is 20%, along with the indexation benefit. 

If equity mutual fund units are held for up to 1 year, short-term capital gains are applicable that are taxable at 15%. In the case of debt mutual funds, units held for up to 3 years can fetch short-term capital gains ─ taxable as per an investor’s income tax slab.  

In most cases, the tax implications on equity funds can be more advantageous than debt funds. However, the case may not always be the same.  

Also Read: International Mutual Funds

Final Word 

Balanced advantage funds can be one of the best mutual funds to invest in as they perform favourably in any market scenario and offer reasonable returns to risk-averse individuals. Refer to this guide if you are looking to invest in a balanced advantage fund. 

However, if you are looking to invest in a fund that primarily invests in debt securities, you can opt for a debt fund from Navi. These funds are suitable for those with a moderate risk appetite. 

Navi offers a completely hassle-free, paperless and automated fund application process and the expense ratios are also surprisingly lower. Visit www.navimutualfund.com today and start investing!

Frequently Asked Questions  

Before you go…

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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.