Invest in Top Balanced Advantage Mutual Funds In 2022: High Return Mutual Funds In India
Balanced advantage funds: Dynamic allocation of equity and debt
In the long run, equities can create wealth for investors. However, equities are prone to market volatility in the short run. Debt can give much-needed stability to the portfolio when equity markets are experiencing volatility or falling. What if investors can get the best of both (equity and debt) in a single mutual fund scheme? Balanced advantage funds provide you with that. This blog focuses on how to invest in top balanced advantage funds in 2022.
What are balanced advantage funds?
A balanced advantage fund is an open-ended dynamic asset allocation fund. It invests in a mix of equity and debt instruments and manages their proportion dynamically.
The fund manager actively manages the equity and debt component of the fund based on pre-defined criteria or parameters such as price to earnings (P/E) ratio, price to book (P/B) ratio, or a combination of both, or some other criteria/parameters.
There is no specified minimum allocation to equity and debt asset classes per SEBI guidelines. The fund manager can choose to invest 100% of the fund's assets into equity or debt or any combination of the two, depending on market opportunity. A balanced advantage fund is also known as a dynamic asset allocation fund.
Best balanced advantage fund to invest in
Let us look at the returns given by the best balanced advantage funds.
Table: Balanced advantage funds – 5-year returns
|Scheme name (Direct plan - Growth option)||AUM (Rs. crores)||1-year (Absolute returns)||3-years(CAGR)||5-years (CAGR)|
|Edelweiss Balanced Advantage Fund||7,353||13.02%||18.19%||13.98%|
|HDFC Balanced Advantage Fund||42,999||16.51%||16.01%||13.42%|
|ICICI Prudential Balanced Advantage Fund||38,543||11.30%||13.97%||11.60%|
|IDFC Balanced Advantage Fund||2,962||10.30%||13.33%||11.00%|
|Nippon India Balanced Advantage Fund||5,709||11.66%||12.83%||10.99%|
Note: The returns are as of 21st Feb 2022.
The above table shows the top balanced advantage fund has given a return of 13.98% CAGR in the last five years, which is a very good return.
Who should invest in balanced advantage funds?
Investors looking to diversify their investment portfolio into equity and debt instruments with a single mutual fund scheme can consider investing in a balanced advantage mutual fund scheme. However, you need to understand that the fund manager, at their discretion, may decide the equity and debt allocation based on some pre-set criteria and market opportunity.
Taxation of balanced advantage mutual funds
For taxation purposes, if the equity component of a balanced advantage fund is always above 65%, it will be treated as an equity scheme and taxed accordingly. On the other hand, if the equity component falls below 65% at any time, it will be treated as a debt scheme and taxed accordingly.
Taxation of balanced advantage funds (classified as equity scheme)
- Short-term capital gains (STCG) tax: The capital gain will be categorised as short-term capital gain if you sell your balanced advantage fund units within twelve months after acquisition (STCG). The tax on short-term capital gains (STCG) will be imposed at a rate of 15%.
- Long-term capital gains (LTCG) tax: The capital gain will be recognised as long-term capital gain if you sell your balanced advantage fund units after twelve months of acquisition (LTCG). The first Rs. 1 lakh in long-term capital gains would be tax-free each financial year. Long-term capital gains of more than Rs. 1 lakh will be taxed at a rate of 10%
Taxation of balanced advantage funds (classified as debt scheme)
- Short-term capital gains (STCG) tax: If you redeem your balanced advantage fund units within thirty-six months of purchase, the capital gain will be classified as short-term capital gain (STCG). The short-term capital gain (STCG) will be added to your overall income and taxed as per the income tax slab that you fall in.
- Long-term capital gains (LTCG) tax: If you redeem your balanced advantage fund units after thirty-six months of purchase, the capital gain will be classified as long-term capital gain (LTCG). The long-term capital gain (LTCG) tax will be levied at 20% with indexation benefit and 10% without indexation.
Risks involved in balanced advantage mutual fund schemes
In the case of balanced advantage funds, the risk varies depending on the scheme's equity exposure. In the earlier section, we have discussed how the fund manager can increase the equity exposure of the scheme up to 100%. So, the higher the equity component, the higher is the risk as equities are volatile and vulnerable to sharp corrections in the short term.
Return potential of balanced advantage funds
In the table in the above section, we saw how the top balanced advantage fund had given returns of 13.98% CAGR over the last five years. Balanced advantage funds have equity exposure, although the percentage varies. In the long run, equities have the potential to give inflation-beating high returns. Hence, balanced advantage funds also have the potential to give inflation-beating high returns. Balanced advantage funds can create wealth for you in the long run and help you achieve all your financial goals.
Advantages of balanced advantage mutual funds
The biggest advantage of a balanced advantage fund is that it gives you a combination of equity and debt in a single mutual fund scheme. The equity component has the potential to give inflation-beating high returns. When equity markets are falling, the debt component cushions its impact on the scheme's net asset value (NAV). The debt component provides stability to the fund when equity markets are volatile.
Reasons to invest in balanced advantage mutual fund schemes
Some of the reasons for investing in balanced advantage mutual funds schemes include:
- You get an equity exposure depending on the fund manager's discretion, which depends on market opportunity. The equity asset class has the potential to create long-term wealth. The fund manager includes debt securities also beyond the equity allocation. It can provide a diversified portfolio with a mix of equity for growth and debt for stability.
- Diversified exposure to a mix of equity and debt in a single mutual fund scheme. As per the asset allocation strategy, an investor should invest in a diversified set of asset classes such as equity, debt, gold, real estate, etc.
However, please note that balanced advantage mutual fund schemes carry high risk due to their exposure to equities that can be volatile in the short run. Hence, you should consider investing in balanced advantage mutual fund schemes only if you have a risk appetite and a long investment horizon.
To start investing in balanced advantage mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.