Strengthening your portfolio core with BAF

India is a nation obsessed with cricket and cricketers, so much so that we even know the fitness routines and diet patterns followed by our favourite players. With the IPL season coming up, players are taking extra efforts to be in fighting form and one thing they all focus on is exercise. If you look at their exercise routines, you will see a lot of time being spent on activities such as running and power exercise such as deadlifts and press-ups. While this practice may seem strange, considering the fact that cricketers need not lift heavy weights on the field, sportspeople train with the aim of strengthening their core. Having a strong core ensures that they are better poised to deal with the demands on-field, making them better at the game. The same is true of your investment portfolio as well. If you are looking at a long and successful inning in the investment world, the core of your portfolio needs to be strong.

Balanced advantage funds for your portfolio core

You must already know that mutual funds are a great way to create a diversified investment portfolio that can help you achieve your multiple goals. This is possible because there are  several different types of mutual funds  that invest in different investment instruments, across different time frames, and at varying levels of risk. Of the different categories available, there are hybrid funds which invest in a mix of equity and debt instruments. Within this, there are balanced advantage funds.

Based on the category they belong to, you already know that balanced advantage funds invest in a mix of equity and debt instruments. However, what makes them the perfect fit for your investment portfolio is their ability to follow a dynamic asset allocation strategy which allows them to invest as little as 30% or as high as 80%, in equities. When markets are doing well, they increase their exposure to equities and when markets are falling, they decrease their equity exposure. This way, balanced advantage funds help you benefit from the upside potential of equities and protect you from the downside.

Balanced advantage funds, or BAFs , can make your investment portfolio iron-clad because of a variety of reasons. Some of these include:

Exposure to equity –As the name suggests, BAF follows a balanced asset allocation strategy, diversifying its corpus across equity and debt. This means that you can enjoy equity exposure and the potentially high returns, without having to face the risk associated with pure equity exposure. Further, the equity exposure ensures that your returns are taxed in line with equity funds, making it more lucrative. Gains from equity mutual funds are taxed based on the investment holding period. Short-term is defined as equity investments sold within one year of purchase and long-term is defined as investments old after one year of purchase. Forequity mutual funds, the short-term capital gains tax is 15% and the long-term capital gains tax is 10% on equity gains in excess of Rs. 1 lakh in a financial year.

Exposure to debt –The most important thing about portfolio building is to create a diversified investment portfolio and what better way to ensure diversification, than picking BAFs? Since BAFs invest in debt instruments as well, you are able to reduce your overall portfolio risk through exposure to lower risk and more stable debt investments.

Dynamic asset allocation –The biggest reason to put BAFs at the core of your portfolio is the fact that these funds can shift exposure between debt and equity investments to take advantage of rising markets and protect the downside in falling markets. While BAFs can invest up to 35% in debt securities, to keep within the equity classification, depending on the volatility and the possibility of impending market crashes, fund managers can increase the debt allocation significantly. Further, given the hybrid nature of the fund, BAFs offer your portfolio stability as well as high returns, making it the perfect anchor.

Now that you know why BAFs make excellent picks to act as the core of your portfolio, why delay? Start investing right away!

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