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What is difference between balanced fund and balanced advantage fund?

There are a lot of balanced advantage funds - are they different from balanced funds? What is the difference and which is better?

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3 Approved Answers

aniket

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
  • Dividend

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.

Happy Investing!

Arpit Chandak

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. 

  • These funds are considered ideal for investors who want to invest in stock market and at the same time keeping the overall risk level low.
  • The equity component of the portfolio gives the investor the opportunity for growth whereas the debt component balances the risk of the investment.

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.

  • Balanced advantage funds are considered less risky in comparison to plain balanced funds.
  • The equity exposure which is typically 65-70% in case of balanced funds can fluctuate between 30-75% approx in case of balanced advantage funds based on the market conditions. The remaining capital is invested in debt and arbitrage.
  • These funds are basically for conservative investors who do not want higher risk exposure.

Which is better ?

  • Both the funds are designed to handle the diversification of a risk averse investor. These funds provide benefits of both equity and debt funds by investing in a single fund.
  • However, if you want to gain from the market as soon as the market shows upward or downward trend, balanced advantage funds are ideal.
  • To minimize the risk exposure, you can invest in balanced funds through Systematic Investment Plan (SIP). It will reduce the risk of whole portfolio and can provide investors the benefits of compounding.
  • However, the investment period of balanced funds should be extended to at least 2-3 years, to maximize the returns.

Pijush Kanti Biswas

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:

 

Happy Investing!

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, investment goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs.
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