The Indian economy is improving faster than expected. This is evidenced by high consumption of fuel and electricity, stabilization or increase in freight, and improvement in the sale of medium and heavy commercial vehicles (MH&CV). In addition, with the improved macro-economic data, the corporate world has shown exceptional vitality in returning from a lockdown period. With the expansion of margins, their sales have increased and due to the low base, it can show shocking figures in earnings.
FII investment will continue to be strong, with interest rates going down globally and the printing of notes by central banks, as they ultimately require better returns. In this way, steady cash flows, strong macro-economic data and better corporate profits will keep the markets strong. But the biggest risk that is raising the head is that of inflation.
Covid has been hit by the unorganized sector, which has some role in every value chain of the entire industry. There has been a supply disruption as the supply chain has been affected by the slowdown in many businesses in the unorganized sector. The inability of the supply chain to keep pace with demand may add to inflationary pressures. In the past, we have said that in view of the weak global economic scenario, central banks would ideally hesitate to raise interest rates instead of showing more activity.
In such a situation, an alternative looks like a Balanced Advantage Fund. It is a fund that dynamically manages the allocation of assets across the entire segment of equity and debt. It adopts the ‘buy low and sell high’ model for long-term wealth creation. It provides excellent investment solutions for investors.
Adopting a model-based approach helps to rebalance between equity and fixed income by investing naturally and saving tax, and investors do not have to monitor themselves.
Generally, the allocation of assets varies according to the changing economic situation in other mutual fund categories such as equity funds, but Balanced Advantage Funds strictly follow their own path and do not go beyond the limits set in the investment target. While investing in a Balanced Advantage Fund, an investor must take into consideration risks, returns, costs, investment limits, financial goals, tax on returns, etc.
Advantages of Balanced Advantage Funds:
1. The asset allocation model adopted by such funds is of a cyclical nature. When the market climbs, it reduces investment in equity, and vice versa. The assets of such funds are actively managed between equity and debt. But ultimately the investor gets the benefit of buying from this fund at a lower price and selling at a higher price.
2. It takes care of the asset allocation needs of an individual.
3. Investors can also opt for an SIP option to invest in a Balanced Advantage Fund to achieve long-term goals such as children’s education, marriage or retirement needs.
These funds are ideal for an emerging generation of professionals and entrepreneurs, who may not want to be tied to a traditional career; For those who want a dynamic career based on different skills, take the risk to maintain their business ideas, do not want to fit into a traditional income-generating niche and are looking for investment options that include There is protection from the risk of decline and also the ability to get returns is not affected in any way.
This also happens for people who are young and have a long life ahead, but do not want to adopt the traditional approach nor do they want any risk to their investment funds. Investors who like smart ways about actively managing their investments to maximize their returns. And finally for investors looking for a tax-saving dynamic asset allocation model.
Below we are giving some benefits of investing in Balanced Advantage Fund to achieve your retirement goal:
1. Asset Allocation: This has the intrinsic feature of asset allocation. It is something that does not take time for your investment to produce good results and it is a category in which this quality occurs naturally.
2. Builds discipline: It develops discipline in you. You have to allocate your assets in the higher and lower cycles of the market. In this, the allocation of equity and fixed income keeps reset naturally and thus helps in maintaining discipline.
3. Provides better protection from declines: Investors who want low volatility often opt for balanced funds, as they earn income from bond allocation for a portfolio. Bonds provide a more stable return and do not usually withstand much volatility like stocks.
4. Good Returns: Balanced Advantage funds help you to get better returns per unit risk (which you are taking in an investment). Since we do not have enough time as an investor to monitor the markets, Balanced Advantage Fund helps us to get better returns per unit risk.
5. Equity-like tax benefit: Investors invest in a single equity fund or a fixed income instrument and invest in it or go out, it is better to opt for Balanced Advantage Fund which is also tax saving. . This is a category designed in such a way as to provide tax benefits similar to equity funds.
Thus, in the end it can be said that Balanced Advantage Funds benefit the stability and alpha of an investment – both are important in terms of retirement.
Hence people should invest in Balanced Advantage Fund as it has very low volatility and aims to provide returns similar to equity funds in the long term. Their goal is to provide permanent and regular income by investing in fixed income instruments. It has the advantage of greater tax savings than the asset allocation applied by the investors themselves. It is well defined and has proved itself from time to time without any bias. In the end, it is a bouquet of potential capital gains, capital protection and curb on volatility.
(The author is Senior Fund Manager (Equities) at PGIM India Mutual Fund. The views published are personal to the author.)