Why Balanced Advantage Funds May Help Navigate Market Volatility
Discover how Balanced Advantage Funds can help investors manage market volatility by dynamically adjusting between equities and debt. Learn how these funds offer risk-adjusted returns and portfolio stability in uncertain markets.
In today’s fluctuating market environment, balanced advantage funds (BAFs) are increasingly seen as an attractive investment option. These funds aim to deliver risk-adjusted returns and protect investor portfolios against sharp market corrections.
Market Background
Recently, foreign institutional investors (FIIs) have been rapidly selling off Indian equities, divesting approximately $10 billion in just the first three weeks of October. This shift is influenced by preferences for China’s stimulus-driven economy and the U.S., where rate cuts are on the horizon. Meanwhile, other central banks have started to lower rates, while India’s Reserve Bank (RBI) remains cautious about rate reductions.
In such an environment, where equity markets are volatile and interest rates are still relatively high, investors need to carefully assess and diversify their asset allocations.
Balanced Advantage Funds: A Compelling Choice
Balanced advantage funds, also known as dynamic asset allocation funds, dynamically adjust between equities and bonds, factoring in valuations, macroeconomic indicators, and interest rate trends. This flexibility makes them resilient in volatile conditions, allowing them to deliver risk-adjusted returns and shield portfolios from significant downturns.
Unlike other investment options, timing is less critical for BAFs since they can strategically rebalance based on market conditions. They’re also ideal for investors using systematic transfer plans (SWPs) to generate periodic cash flows from a lump-sum investment.
One standout performer, SBI Balanced Advantage Fund, has consistently delivered strong results since its inception three years ago, making it a viable option for both lump-sum and SIP (Systematic Investment Plan) investments over the medium to long term.
Consistent Performance
Since its inception, the SBI Balanced Advantage Fund has demonstrated steady returns. Over the past three years, the fund delivered an annualized return of 4.3%, and over the past year, a return of 23.9%.
From August 2021 to October 2024, the fund’s average one-year rolling return was 16.5%. Impressively, it delivered over 10% returns 69% of the time and over 12% returns 68.5% of the time.
For retail investors without a large lump sum, SIPs are also a practical option. A three-year monthly SIP in the fund achieved an XIRR (extended internal rate of return) of 18.6%. This fund is also suitable for moderate-risk investors who prefer a steady income from their lump-sum investments through SWPs.
Managing the Equity-Debt Balance
The SBI Balanced Advantage Fund carefully maintains a balanced mix of equity and debt. The equity portion includes predominantly large-cap stocks, primarily from the Nifty 100 index, with most individual holdings below 5% of the portfolio. A small allocation to mid- and small-cap stocks provides additional growth potential while maintaining a moderate risk level.
In terms of debt, the fund takes a conservative approach, primarily investing in AAA-rated corporate bonds and government securities, ensuring low credit risk.
The fund’s active approach extends to managing bond maturities. During 2022-23, when interest rates were rising, the average maturity of the debt portfolio was shorter, at 5–7 years. As rates stabilized and yields started to fall in early 2024, the fund increased its debt maturity to an average of 9.65 years to capitalize on favorable bond market trends.
A Reliable Investment for All Market Conditions
SBI Balanced Advantage Fund has established itself as a reliable choice across various market conditions. It combines conservative risk management with the potential for above-average returns, making it a strong option for investors seeking both growth and stability in turbulent markets
Source: BusinessLine
The SBI Balanced Advantage Fund is a dynamic asset allocation fund that offers a balanced mix of equity and debt, making it well-suited for navigating volatile market conditions. The fund actively adjusts its equity and debt exposure based on market valuations, economic indicators, and interest rate trends, which helps in generating risk-adjusted returns and provides a cushion against market downturns. Its equity investments primarily focus on large-cap stocks from the Nifty 100 index, with a diversified portfolio that limits individual stock exposure, while its debt holdings are conservatively managed with AAA-rated corporate bonds and government securities to minimize credit risk. Additionally, the fund’s flexibility in adjusting bond maturities allows it to adapt to changing interest rates, enhancing returns while managing risk. For investors seeking stable growth with moderate risk, the SBI Balanced Advantage Fund presents a strong option for both lump-sum and SIP investments, offering resilience and potential for healthy returns across varying market cycles.