Investing money is not an easy task. Most people tend to ignore the fact that nobody is completely immune to the market. One bullish condition and you will end up losing big chunks from your investment.
Many people tend to invest in high-priced equity or funds thinking that one day the price will go up and they will the same to make profits.
And, in some other cases, they get afraid of the fluctuating market and end up selling the shares too early. This is where Balanced Advantage Funds come into the scene.
This is a type of hybrid fund, which can help in hedging against major market fluctuations. Here is a guide to what a balanced advantage fund is and how to use them to grow your money.
What is a Balanced Advantage Fund?
When it comes to investment, two asset classes’ equity and debt are the two most common options. Now, when people invest with equity they are taking up a higher risk for getting a higher return.
On the other hand, when people are investing in debt, they are choosing a much more stable option which also has a lower range of returns.
Usually, mutual funds tend to have the only type of assets in them. To solve this problem dynamic asset allocation fund or Balanced Advantage Fund is introduced. In this, there is a dynamic mix of equity and debt which is allocated as per the market.
Another thing that makes the fun stand out is the dynamic factor. This means the money gets allocated and invested in various assets with time by the fund manager as per the market movements.
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Strategies to use Balanced Advantage Fund
Now that you have clarity on what is balanced advantage fund, let’s look into some strategies that will help use these funds to the fullest.
Understand its difference from balanced funds
One of the biggest mistakes that people tend to do while investing in Balanced Advantage Funds is they do not try to understand the difference between balanced funds and Balanced Advantage Funds.
Understanding the difference can help in investing in the right type of funds, which will give the right type of returns.
Now with balanced funds, the allocations of asset class between equity and debt are almost equal. The maximum is around 60 percent and the minimum is around 40 percent.
However, on the other hand, Balanced Advantage Funds are not fixed, and the allocation can be flexible between equity and fixed-income assets. This will help in not getting stuck in one place when the market is either bullish or bearish.
Invest a lump sum amount in these funds
Making smaller amounts of investments over a long period can be a risky avenue. This is because you may not be able to read the market well, and may end up spending money on an investment avenue that will go down in a shorter period.
So, if you want to earn some returns, then it is advised to make a lump-sum investment. This way your fund manager will have enough capital in hand to distribute the same wisely as per the market dynamics.
This will help in mitigating the market risks and will also avoid getting stuck with the same type of investment.
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Always look out for investment and its growth
When the market gets uncertain or bearish there is always a huge chance of wiping out your equity investments. Likewise in a bullish market, you can earn and grow your investments by manifolds.
You can choose fixed-income investments to avoid losses or if you only want to grow your income at a slow and steady pace. Or you can choose equity if you can take some risk.
For those who want to grow their money and want to invest wisely, Balanced Advantage Funds is a perfect choice.
This way they will not have to worry about losing money during a bearish market, or they will not have to worry about missing any opportunity during a bullish market.
You can sit back and relax while your fund manager will invest in a mix of mixed-income assets and equity to set off risks.
One of the major factors that you need to keep in mind is that diversification is good. Without diversification, you will end up losing your money to the wrong avenue.
A slight movement in the market and you will lose money immediately. But, with a diversified portfolio, you can avoid losses.
One way to succeed in investing in Balanced Advantage Funds is that you need to embrace the fact that your fund managers will dynamically allocate your investment into various small, mid, and large-cap equities, this will create a balanced arrangement of risk and returns for long term investment to grow your money.
Be aware of the valuation strategy
Lastly, you need to understand the type of valuation strategy used in Balanced Advantage Funds. Most funds used P/E which is a price-to-earnings ratio to judge equity.
But unlike most funds, in balanced advantage funds, the valuation strategy is by P/B ratio or the price-to-book ratio.
One of the biggest reasons why the P/B ratio is used instead of the P/E ratio is that price to earnings ratio is quite volatile and therefore can give wrong judgments on a set of equity.
With these funds, you can vie for higher returns, better stability in the investment, and a low range of risks. Also, it is quite convenient as you will not have to do anything on your own.
There will be a fund manager to handle the investment part. Therefore, one can sit back and take advantage of the constant market movement by relying on both equity and debt.
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