Are Balanced Funds Better Than Balanced Advantage Funds?
The market volatility and SEBI's re-categorization have left thousands of investors in a dilemma, as to which category is best-suited to their investment style, and the main reason behind that is the lack of information. Now, one common query we often receive from our clients is, “Which one is better- Balanced funds or Balanced Advantage funds.”
To end this confusion, today, we, the experts at MySIPonline, are going to compare the fundamental aspects of both the categories and will see that which one leads the pack.
What Exactly They Are?
Before starting the comparison, we will first see the basic definitions of Balanced funds and Balanced Advantage funds to get a deeper understanding of the aim which these two follow:
- Pure Balanced Funds or Hybrid Equity Funds- This is a category of mutual fund where the asset allocation is fixed within a narrow band as stated in its respective sub-category, be it aggressive, balanced, or conservative. The equity allocation is done as per the sub-category where 65-80% is aggressive hybrid funds, 40-60% balanced hybrid funds, and 10-25% conservative hybrid funds. The rest of the assets are allocated in the fixed income instruments.
- Balanced Advantage Funds- This category after re-categorization has been named to hybrid-dynamic asset allocation. Here, the investment in equity or debt is managed dynamically. Generally, the equity allocation in these schemes ranges in between 30%-80%, depending on the market conditions. The portfolio modification in this category is more frequent so that the schemes can easily sail through the volatile markets.
Comparison As Per the Returns
To get a deep understanding of which one is better we have taken the average returns of the aggressive hybrid category, balanced hybrid category, and the balanced advantage category Let's see what they delivered to the investors.
From the above table, we can see that the returns delivered by the aggressive hybrid funds are far better than the balanced advantage funds.
Thus, it can be concluded that the balanced advantage funds offer greater flexibility and benefit of making the most of the market volatility but due to downside protection, the returns are reduced. Besides, over the long-term periods, the delivered returns are further muted, which is another effect of aggressive re-balancing that prevent the funds from capturing the market upside efficiently. Thus, they are not suitable for investors with even moderate risk profile.
With recent categorization, investors can slot themselves more efficiently who wish to seek a balanced approach while investing. They are the better choice when it comes to managing risk for most of the investors.
The Final Take: Which One Is Better?
The answer to the above questions is, ”Both.” Yes, you heard it right, both the categories are good, it's just that which scheme suits the investment style of the investor.
If an investor has a low-risk appetite or we can say, follows a conservative style of investing, then the balanced advantage funds are a great choice for him as the risk associated is very low because of the diversification of the funds.
Whereas, if the investor can bear a bit of risk with their investment and is comfortable with aggressive investment style, then balanced funds are best for them as the returns provided in the long run are immense, and the opportunities of growth associated with it are also very high.
So, keep in mind that no particular category is best or worst. If a scheme has good management and stays up with the market trends, then it is bound to be good, and if the scheme is not properly managed and is following the same investment strategy even when it's not working, then no one can save it from failure.
Now, let’s check the recommendations.
If you are confused as to which investment style is best-suited to you or which category can help you better in achieving your future goals, then you can contact our experts anytime, and they will be happy to help.
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