While equity investments can offer high returns over the long run, short term fluctuations often worry investors. In such a scenario, balanced funds that aim to provide income as well as capital appreciation have gained prominence. Within balanced funds, Balanced Advantage Funds have emerged as a popular category that can provide stable returns even during market downturns. Here are 5 key reasons why Balanced Advantage Funds make for a smart investment option for Indian investors in 2023.
- Ability to navigate market uncertainties
2023 is expected to bring more uncertainty for the global as well as Indian economy and markets. There are concerns around high inflation, rising interest rates across major economies, geopolitical tensions and slowing growth. Such an environment of high volatility makes pure equity investing risky.
Balanced Advantage Funds are well equipped to navigate market uncertainties. They have the flexibility to shift their portfolio stance between equity and debt depending on the market conditions. The fund manager can increase equity exposure when the outlook is positive and raise gold and debt allocation when risks are high. This dynamic asset allocation approach aims to generate positive returns in different market cycles.
- Inflation hedging properties
Soaring commodity prices have pushed inflation in India to over 7% currently. High inflation erodes the real returns earned by investors. Balanced Advantage Funds help investors counter inflation in two ways –
Equity investments: Over the long run, equities have consistently outpaced inflation in India. Balanced Advantage Funds invest about 65% of their portfolio in stocks to capture upside when markets are bullish.
Gold allocation: Balanced Advantage Funds typically hold 5-15% of their portfolio in gold either through ETFs or sovereign gold bonds. Gold acts as a good inflation hedge and its value tends to rise when prices are increasing sharply across other assets.
This mix of stocks and gold enables Balanced Advantage Funds to maintain or grow portfolio value even during high inflation periods, shielding investors’ wealth. Consider inflation protection, they may emerge as a preferable option vis-a-vis traditional debt funds or FDs in 2023.
- Steady and tax-efficient income generation
Most Balanced Advantage Funds follow a mandate to regularly pay out dividends to unit holders. By investing in a combination of equity and debt assets, they generate both capital gains and dividend income. At least 65% of their annual returns are mandated to be distributed to investors.
These regular dividend payouts, which are taxed as per the respective tax slab rates of the individual, offer investors a steady stream of tax-efficient income. For those in the higher tax brackets, the investment gives similar post-tax returns as debt funds but with the additional opportunity for capital appreciation from equity investments. The income feature makes Balanced Advantage Funds very suitable for retail investors looking for wealth creation as well as monthly/quarterly income.
- Cost efficiency
Compared to separate investments in diversified mutual funds, Balanced Advantage Funds provide the benefit of a well-diversified portfolio at lower costs. An investor need not invest in multiple funds separately to build an optimal asset allocation. With a single investment, one gets exposure to both debts and equities as well as other asset classes through a professionally managed Balanced Advantage fund.
- Long term wealth creation
Considering their ability to provide stability as well as upside through dynamic allocation, they are well-suited for long term goals like retirement, child’s education, etc. requiring money after 5-7 years or more. Historically, their average returns have been higher than traditional investment options like FDs and debt funds over 5-year or 10-year periods.
Given the prevailing economic challenges and market uncertainties, Balanced Advantage Funds with their versatile portfolio strategies can help investors generate steady returns in 2023. Their tax-efficient income feature and long-term wealth creation make them a viable investment for fulfilling different financial goals. Investors looking for a convenient diversified solution can consider allocating a portion of their portfolio to Balanced Advantage Funds to achieve their objectives.