WHY CHOOSE ALL-WEATHER FUNDS

Balanced Advantage Funds are a class apart and come in handy for all types of investors for the dynamic asset allocation model they follow

- Narayan Krishnamurthy

The hybrid fund category, as prescribed by the market regulator SEBI, follows a pattern where the funds need to maintain an allocation to equity and debt in varied combinations. Among them, the Balanced Advantage Funds or Dynamic Asset Allocation Funds, as they are popularly known, stand out because of the periodic rebalancing of these funds' portfolios depending on prevalent market conditions. The asset allocation between equity and debt is also aided by arbitrage opportunities and derivative instruments as a risk-hedging mechanism as stated in specific fund's objective.

Most Balanced Advantage Funds invest 65-80 per cent of the asset in equities based on the fund's stated objective and the strategy adopted by the AMC (asset management company) running the fund. The dynamic allocation is based on a model that is stated in the fund's objective and SID (scheme information document). This model varies across AMCs and hence each Balanced Advantage Fund is different in the way it is structured and managed. For instance, some may have a valuation matrix that decides the allocation to equity, while some may base the allocation based on the index levels to decide on the equity allocation. Likewise, some may take arbitrage as a strategy to manage.