Mutual Funds Day 32: Balanced Advantage Hybrid Funds

In the last chapter, we learned about conservative hybrid funds i.e. MFs which have less than 25% exposure in equity and the rest being in the debt category.

The next category is Balanced Advantage funds which have an equity exposure between 40 to 60% and the rest being debt i.e. 60 to 40%. Among the hybrid funds, the balanced advantage fund is the most popular, primarily because the returns it offers for the risk taken are much better than a pure equity fund.

An active fund manager decides the ratio of equity investing versus debt investing. The minimum exposure on equity should be 40% and the maximum could be 60%, so based on the current stock market valuations, he increases or decreases the exposure.

The minimum debt exposure has to be 40% and the maximum is 60%. There is no compulsion that if the fund manager goes with 50% equity, the rest 50% has to come from debt. He could even maintain the following ratios, 50% equity, 50% debt, and the rest 10% cash.

The real performance of a balanced advantage fund stands out when equity markets are in a sideways trend. If we are in a bull market i.e. prices of the stocks are in an increasing trend, then the balanced advantage fund will underperform vs pure equity fund.

Age, income, and objectives are major considerations when selecting a mutual fund. A senior person might prefer to lower the risk and reduce the equity exposure — this is where Balanced Advantage MFs become so useful.

Examples:

https://viswaram.com/mutual-funds-day-33-aggressive-hybrid-funds-f99c29d20c3e

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