Understanding Balanced Advantage Funds

Investing in debt and equity is recommended to mitigate risks if you are new to investing. You might find balanced advantage funds, which are also referred to as Dynamic Asset Allocation funds, helpful in this situation. Balanced advantage funds (BAFs) are a sub-category of hybrid mutual funds that seek to achieve a balance between returns and risk. In this article, let’s understand about this fund.

What are Balanced Advantage Funds?


The Balanced Advantage fund invests in both equities and debt, but it has no restrictions regarding asset allocation. The amount of exposure to a certain asset class is not fixed. Depending on market conditions, these funds can also change their asset allocation. During periods of high equity valuations, fund managers can increase equity exposure, while limiting it during periods of declining stock prices. A Balanced Advantage fund offers a mix of growth and fixed-income instruments, but unlike other funds, it can also switch between them dynamically. Therefore, balanced funds are also referred to as dynamic asset allocation funds.

Features of Balanced Advantage Fund

A Balanced Advantage Fund uses market volatility as a growth tool through an effective strategy. Market-linked returns are offered by equity, while steady income is offered by debt. Due to their following features, these funds can be appropriate choices for wealth creation planning:

Diversification: In dynamic asset allocation funds, different types of asset classes are divided into categories and subcategories. There is a wide range of market capitalizations and sectors that fund managers invest in. In addition to these investments, they also invest in government bonds and Treasury bills. In the former, higher returns can be generated while in the latter, risks can be minimized.

Asset allocation: A balanced hybrid fund can save investors from massive losses by re-allocating assets. The distribution of assets in dynamic asset allocation funds can be tweaked to maximize return while minimising risk.

Flexibility: As mandated by SEBI (Securities and Exchange Board of India), most hybrid funds have pre-defined asset allocations. However, in balanced advantage funds, the fund managers have the flexibility to invest 0% to 100% of the fund in different asset classes.

Low volatility: A diversified asset allocation could reduce portfolio volatility. If the equity market declines, investments in debt securities can balance the portfolio’s risk.

What is Asset Allocation in a Balanced Advantage Fund?

A Balanced Advantage Fund’s asset allocation plays a critical role. A fund’s asset allocation refers to the allocation of its investments among different asset classes, primarily equity and debt. In these funds, asset allocation aims to strike a balance between risk and return. This is how it works:

Equity Allocation: Fund managers allocate more of the fund’s assets to stocks when they believe the stock market will produce higher returns. Due to this, the fund is exposed to more volatility and has a higher potential for growth.

Debt Allocation: If the fund manager anticipates higher volatility or lower prospects for the equity market, the fund’s allocation will shift to debt instruments. The goal of this move is to provide portfolio stability and reduce overall risk. It’s important to keep in mind that debt isn’t risk-free. Their performance can be affected by factors such as interest rates and credit quality.

Cash or Cash Equivalents: A Balanced Advantage Fund may hold some assets in cash or cash equivalents. This provides liquidity and flexibility allowing you to take advantage of investment opportunities.

In addition, if you are looking for a tax saving scheme then you can consider ELSS (Equity Linked Saving Saving). You can easily invest in this fund through the ELSS fund app.

Benefits of Investing in a Balanced Advantage Fund

After understanding balanced advantage fund and its features, let’s know its benefits. Here are some of the benefits of investing in this fund:

Potential Returns: The Balanced Advantage Fund leverages both equity and debt markets to deliver returns. Depending on the prevailing stock market conditions, they can switch between equity and debt investments. The strategy allows them to generate capital appreciation during favourable market phases and generate income from debt during unfavourable market phases.

Risk Reduction: By dynamically allocating their portfolios, these funds minimize their risk. They mitigate volatility by combining the benefits of diversification with the dynamic asset allocation approach.

Convenience: These funds eliminate the need for investors to monitor market movements and constantly rebalance their portfolios. Traditional mutual fund portfolios often require periodic adjustments based on market performance and risk tolerance, but BAFs do these tasks automatically, providing added convenience and peace of mind for investors.


The balanced advantage fund offers investors an option for balancing their investment portfolio’s returns and risks. The funds leverage market conditions to maximize returns and minimize risk by dynamically allocating assets between equities and debt. With balanced advantage funds, investors can navigate market volatility effectively by diversifying across different asset classes and sectors. There are many benefits to investing in balanced advantage funds. Through dynamic asset allocation, they offer reasonable returns by capitalizing on both equity and debt markets.

Note: Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It 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. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.

Past performance may or may not be sustained in future.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.