Mutual fund investors in India often find themselves struggling to strike a balance between earning high returns and exposing themselves to moderate-to-high risk. Hybrid funds help investors in India strike that balance; by helping them invest in a mix of equity funds and debt securities. Balanced Advantage Funds (BAFs) are a sub-category of hybrid funds that help investors change their asset allocation based on the existing market conditions in India.
Balanced funds adopt the dynamic asset allocation model, investing in a mix of equity and debt securities. In this article, we’ll explore what Balanced Advantage Funds are, their unique features, and how you can potentially grow ₹50 lakh into ₹5 crores in 15 years through strategic investment in these funds.
What is a Balanced Mutual Fund, and what are its features?
Balanced Mutual Funds, commonly known as Balanced Funds, offer investors a combination of capital appreciation and income generation. They aim to create long-term wealth by investing in both equity and debt securities. The primary objective of balanced funds is to reduce overall risk by diversifying the investment portfolio across different asset classes. Balanced Advantage Funds dynamically move their assets around based on the market valuations. Here are five key features of Balanced Advantage Funds:
- BAFs help investors eliminate behavioural biases while investing:
One of the significant advantages of BAFs is that they employ a systematic approach to asset allocation. Fund managers rely on data and market indicators rather than emotions, reducing the impact of behavioural biases such as fear and greed. This disciplined approach can help investors make rational decisions and stay invested for the long term.
- Balanced funds tend to be suitable for new investors:
Balanced Advantage Funds can be an excellent starting point for a novice investor looking to explore mutual fund investments. Their dual allocation to equity and debt provides a smoother investment experience, helping investors ease into the potentially volatile equity market while still benefiting from its growth potential.
- BAFs generate risk-adjusted returns:
BAFs aim to strike a balance between risk and returns. They seek to generate consistent returns over time while managing downside risk by actively managing the allocation between equity and debt. This makes them suitable for both conservative and moderately aggressive investors.
- BAFs can help investors diversify their portfolio:
BAFs offer diversification by helping investors invest in equities and debt instruments. Diversification divides the overall risk across different asset classes, reducing the impact of a poor-performing sector or security on the overall portfolio.
- In a BAF, performing asset classes compensate for the returns of the underperforming ones:
BAFs have the flexibility to allocate more to asset classes that are performing well while reducing exposure to those underperforming. This ability to adapt to changing market conditions allows them to capitalize on opportunities and minimize losses, potentially enhancing overall returns.
How to get ₹5 crores in 15 years with ₹50 lakh in hand through a BAF investment?
- Define your financial goal: Begin by defining your financial goals, risk tolerance, and investment horizon.
- Choose a Balanced Advantage Fund: Select a reputable Balanced Advantage Fund that aligns with your investment goals and risk tolerance.
- Invest regularly: Invest a substantial portion of your ₹50 lakh lump sum into the BAF and commit to making regular contributions through systematic investment plans (SIPs).
- Review your portfolio: Periodically review your investment portfolio and adjust the allocation based on your financial goals and market conditions.
- Seek professional advice: Keep yourself informed about market trends and economic developments.
Investors can accumulate ₹5 crores in 15 years by strategically investing ₹50 lakh in a well-chosen BAF and staying committed to a disciplined approach. With the right strategy and time horizon, you can harness the potential of BAFs to grow your wealth significantly.