There are a lot of balanced advantage funds - are they different from balanced funds? What is the difference and which is better?Asked
Though the two terms may seem similar, the basic difference between the two concerns with the tools used for investing money.
Balanced funds are funds that allocate their total corpus towards buying both debt and equity instruments, in line with the predefined objectives of the fund. The essence behind this is to effectively move capital from one asset class to another when the former is not performing well. It helps maximize net return to the investor.
Balanced advantage funds are funds that combine stocks, debt and arbitrage into one portfolio. They are relatively less risky, as they use derivative instruments to hedge any downside risk. Typically, equity and equity derivatives comprise at least 65% of the total portfolio, with balance being debt instruments.
If the market’s price-to-book value ratio is low, indicating that the overall market valuations are cheaper than their intrinsic values, the fund will raise its direct equity exposure and rely lesser on arbitrage. The opposite also holds true.
There are generally 2 plans available under balanced advantage fund:
Growth Option: The fund will not declare any dividends under this option. The income earned by the scheme will remain reinvested in the scheme and will be reflected in the Net Asset Value (NAV). This option is suitable for investors who are not looking for regular income but who have invested with the intention of capital appreciation.
Dividend Option: This option is suitable for investors seeking monthly income through dividend declared by the fund. Dividend Option can be availed either as monthly dividend and annual dividend with dividend payout and dividend reinvestment sub-options. The quantum of dividend to be distributed by the AMC is decided out of the net surplus.
I hope I have been able to answer your question to your satisfaction.
The major difference between balanced fund and balanced advantage fund is that advantage funds are dynamic allocation asset funds. They can provide returns in the downfall of the market.
Balanced funds are those funds in which the capital of the investor is diversified across different financial instruments such as stocks,bonds,debt securities, etc to limit the risks. These funds are also known as hybrid funds.
In balance advantage funds, the investment is diversified across stocks, bonds and arbitrage in the single portfolio. The fund manager can change the composition according to the market movements for these funds.
Which is better ?
Both Balanced Funds and Balanced Advantage Funds, invest the money gather into mixture of debt and equity. These are diversified mutual funds having perfect balance between risk and returns on investment, and are most popular mutual funds these days.
Major Difference between these two funds are:
So, depending on your risk appetite and investment goal you can choose to invest in Balanced Funds or Balanced Advantage Funds.
Example Balanced funds:
Example of Balanced Advantage Fund: