Many investors feel very confident when it comes to investing.
They will try to read too much into the market and take actions like buying equity and mutual funds at a higher rate thinking that it will even raise higher in the upcoming years. Or at times end up selling the stock too early missing out on major benefits.
To help with these risks, traders can opt for Balanced Advantage Funds to hedge their funds to the risks. Its hybrid investment strategies are the best way to tackle market volatility.
If you are also willing to go ahead with Balanced Advantage Funds, then read ahead to know how you can effectively use it.
What are Balanced Advantage Funds?
Balanced Advantage Funds or BAFs are equity mutual funds that support the flexibility of having a dynamic asset allocation strategy. This hybrid mutual fund rebalances the funds periodically depending on the market condition then.
Thus, during a bear market. The fund manager will reduce the equity and increase the fixed asset allocation in the market.
Similarly, during a bull run, the allocation will switch leading to a higher weightage of equity assets and a lower weightage of fixed assets. With these constant updates in the allocation of assets, the behavioral bias gets irradicated.
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How to effectively use Balanced Advantage Funds
Knowing how the fund functions and the ways you can use it to your advantage will bring out the true benefits of this hybrid fund.
Embrace Diversification
One of the major practices that traders/investors need to get comfortable with is the rebalancing of portfolios and encouraging diversification.
When you distribute your wealth into different large-cap, mid-cap, and small-cap firms, you can expose yourself to a bigger market and mitigate certain risks.
Since Balanced Advantage funds rebalance themselves according to the market conditions, you will be easily able to ride the tide of market volatility. And if you do tend to panic with market movements, Balanced Advantage Funds are the best choice for you.
Invest a Lumpsum Amount
Some people think they are wise enough to time the market when it comes to infusing funds into their investment portfolio. But the thing is that it is not easy to do so.
Now since the fund managers of Balances Advantage Funds must rebalance the funds as and when needed, use that to your advantage and invest a lumpsum amount into the funds.
This will even give the fund managers the bandwidth to spread the amount in a better way to benefit from diversification and receive better returns.
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Growth with the Investment
The main characteristic of Balanced Advantage Funds is that it comes with multiple investment options. Thus, depending on your needs from your investment, you can opt for the right trading/ investment option.
If you want to see your investment grow at a steady pace and are avoiding to incur losses for quick income, then you can opt for the growth plan where the investment will be done in safe instruments and avoid equities.
Irrespective of what your requirements are, Balanced Advantage Funds will have the right prospects to cater to your needs.
Different from Balanced Funds
Balanced Funds and Balanced Advantage Funds do tend to sound similar, however, both are different in their terms. Balanced Funds stick to their name and practice equal allocation to debt and equity assets (maximum 60% and minimum 40%).
Whereas, the Balanced Advantage Fund has no fixed guideline and keeps switching the allocation weightage depending on the market conditions.
This flexibility which comes with the latter becomes highly advantageous as you will be able to benefit from bullish or bearish markets and not remain stuck during important market phases.
Accept and understand the Valuation Strategy
Usually, for any market analysis or company analysis, the analysts prefer to use the price-to-earnings (P/E) ratio to value the stocks.
However, the Balanced Advantage Fund breaks this norm of valuation and starts using the price-to-book (P/B) ratio. This ratio is also quite advantageous as financial experts claim that the P/B ratio is less volatile when compared to the former.
Thus, as the fund uses this valuation strategy, it gives the investment the right amount of exposure and benefit.
Conclusion
As the fund allows you to adapt to the market, it brings out the best risk-reward combination.
Moreover, you will not have to work on the funds yourself, professional fund managers will take care of it for you. You can simply sit back and enjoy the additional source of income and wealth appreciation.
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