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Time of India
3 days ago
- Business
- Time of India
Balanced advantage vs. Multi Asset Allocation Mutual Funds: Which should investors choose?
Balanced Advantage / Dynamic Asset Allocation Funds Live Events Multi Asset Allocation Funds Key differences Which fund type should one choose? Way forward for these categories In the diverse universe of mutual funds , understanding the distinction between various hybrid categories is crucial to making informed decisions. Two popular choices for investors seeking a balanced risk-return approach are Balanced Advantage Funds (BAFs), also known as Dynamic Asset Allocation Funds (DAAFs), and Multi Asset Allocation Funds While both aim to manage market volatility and deliver consistent returns, they differ significantly in structure, asset composition, and investment philosophy. Here's a breakdown of how they work and how investors can choose between advantage funds or dynamic asset allocation funds are designed to dynamically shift between equity and debt based on changing market conditions. Fund managers use internal models that assess valuation metrics, momentum, and macroeconomic indicators to decide how much exposure should be allocated to equity or debt at any given time. The equity allocation in these funds can vary widely, typically ranging from around 30% to over 80%, depending on the fund house's model. The debt portion acts as a buffer, helping reduce volatility during market downturns.A unique advantage of BAFs is that many of them maintain an average equity exposure above 65%, often through arbitrage positions. This allows them to qualify for equity taxation, which is more favourable than debt taxation over the long term. The goal of these funds is to provide stable, equity-like returns while limiting downside risks through timely asset rebalancing. Investors who want market participation without full equity volatility often find BAFs an attractive core asset allocation funds, as per SEBI guidelines, are required to invest in at least three asset classes — usually equity, debt, and commodities like gold — with a minimum of 10% in each. This structure inherently provides broader diversification compared to BAFs, as the inclusion of non-correlated assets such as gold helps reduce overall portfolio funds typically maintain a mix where equity forms the core, supported by fixed income instruments and gold or other commodities. Unlike BAFs that dynamically change their equity-debt allocation based on models, Multi Asset Funds often rebalance periodically rather than tactically. The objective here is to deliver stable returns across different market cycles, relying on the varying performance of asset classes rather than frequent tactical shifts. For investors who believe in the long-term benefits of diversification across asset classes, multi asset funds offer a one-stop most fundamental difference lies in the asset mix. While BAFs primarily toggle between equity and debt based on valuation models, Multi Asset Allocation Funds include at least three asset classes and maintain a minimum allocation to are typically more dynamic, with frequent shifts between asset classes to respond to short-term market movements. In contrast, multi asset funds may follow a more stable rebalancing strategy, providing smoother returns but potentially lower agility during sharp market terms of taxation, most BAFs enjoy equity taxation because they maintain the required equity exposure through direct holdings or derivatives. Multi Asset Funds, however, may not always qualify for equity taxation depending on the actual breakdown of the portfolio, which could affect post-tax balanced advantage funds enjoy equity taxation which means investors who hold for more than a year pay 12.5% tax. In the case of multi-asset funds, some schemes that allocate more than 65% to equity enjoy equity taxation. However, there are some conservative schemes that have 35-65% allocated to equity, where investors who hold for more than 2 years pay tax at 12.5%, while those that sell before 2 years pay slab-based distinction is that while BAFs usually exclude commodities, Multi Asset Funds mandate exposure to gold or other non-equity, non-debt assets, offering better diversification in times of inflation or global Advantage or Dynamic Asset Allocation Funds are ideal for investors who want active equity participation but with an in-built cushion during market downturns. These funds are particularly useful for conservative investors looking for equity exposure without fully bearing the volatility of the stock market. They are also suitable for long-term investors who prefer tax-efficient options and want the fund manager to adjust allocations based on market the other hand, Multi Asset Allocation Funds are a good fit for investors who value broad diversification and want exposure to different asset classes like gold, which can act as a hedge during economic instability or inflation. These funds tend to be more conservative in their allocation and are appropriate for moderate-risk investors who believe in riding different market cycles through asset diversification rather than timing or tactical Balanced Advantage and Multi Asset Allocation Funds serve the purpose of managing portfolio risk, but through different mechanisms. While BAFs rely on dynamic shifts between equity and debt based on market signals, Multi Asset Funds take a more structured diversification route involving a broader set of asset choice should ultimately depend on your investment goals, risk tolerance, and belief in either tactical allocation or strategic diversification. In many cases, combining both types within a portfolio can create a well-rounded investment strategy suited for various market the investor has a medium- to long-term horizon, partial deployment in balanced advantage or multi-asset funds can serve as a middle ground, offering market participation with downside buffers,' Sagar Shinde, VP Research, Fisdom shared with sharing the way forward for multi asset allocation funds, Vishal Dhawan, CEO, Plan Ahead Wealth Advisors, a wealth management firm in Mumbai told ETMutualFunds that one can hold multi asset allocation funds in the portfolio especially in volatile markets as they can help preserve capital and deliver more stable returns over time compared to pure equity funds.'Gold, for instance, has emerged as one of the strongest-performing asset classes in recent years, especially during times of global uncertainty. Its presence in the portfolio can act as a natural hedge, offering protection when equities are under pressure. However, it is important for investors to understand the fund's asset allocation model and strategy as this will influence how the fund performs across different market cycles,' Dhawan adds.
Economic Times
26-05-2025
- Business
- Economic Times
Wealth edition 26-May-2025 to june-1-2025
Some beat the blues, others feel them Live Events Know your fund Asset allocation funds came into the limelight when the equity market turned sour towards the end of last year. Amid a prolonged market slump lasting over six months, the primary task for these funds was to cushion the downside. Now, as the market rebounds, these funds have had a chance to prove their mettle. So did your multi-asset fund or dynamic asset allocation fund do its job?The sharp correction in the broader market since October last year tested many investors ' nerves. The BSE 500 index fell nearly 21% by 7 April 2025 from its 27 September 2024 peak. It has since recovered, and now hovers 8% off its previous high. Asset allocation funds as a basket have fared better, but most were not completely immune to value erosion. During this period, multiasset allocation funds saw an average NAV decline of 6.7%, while dynamic asset allocation funds recorded a drop of 8.5%.There were some outliers in this space. Among the multi -asset funds that averted a drawdown were Edelweiss Multi Asset Allocation, WhiteOak Capital Multi Asset Allocation and Franklin India Multi Asset Solution Fund of Funds. A few others like Quantum Multi Asset Fund of Funds , HDFC Multi-Asset Active FoF, ICICI Prudential Asset Allocator Fund, among others, managed to limit the downside. Parag Parikh Dynamic Asset Allocation was the only scheme from the dynamic asset allocation basket to deliver a positive return in this period. However, many like DSP Dynamic Asset Allocation, Franklin India Balanced Advantage and SBI Balanced Advantage cushioned the downside well.A closer look at the asset allocation patterns of these funds reveals why they could hold their ground so well. Not surprisingly, the funds that averted a drawdown had among the lowest exposure to equities. In a category populated by funds taking a distinct equity slant, it was the funds that practiced a prudent asset allocation approach that kept investors in the gold allocation in a few funds also helped prop up returns further. Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance, asserts, 'During downturns, these funds typically benefit from bond and gold exposure, which help offset equity losses.'On the flip side, several funds saw sharp drawdowns during this period, including Motilal Oswal Balanced Advantage, Motilal Oswal Multi Asset, HSBC Multi Asset Allocation and Quant Dynamic Asset Allocation. Some of these are aggressive by nature. These do not necessarily cater to the risk profile of investors that asset allocation funds typically attract. The equity tilt in some funds allows them to retain favourable tax treatment, but risk rises. Tandale says, 'Since October 2024, funds with higher allocations to bonds or gold likely cushioned losses more effectively. In contrast, equity heavy portfolios experienced sharper declines but also stronger rebounds.'Bhavana Acharya, Co-founder, observes that the risk in some funds emanates from higher exposure to the broader market. 'Individual stocks fell much more than the index during the correction. Funds holding these names got hit far more despite having sizeable allocation to fixed income,' Acharya says. For instance, Motilal Oswal Balanced Advantage and Motilal Oswal Multi Asset had 60% and 50% allocation, respectively, to mid- and small caps at the end of September increased further to 73% and 59% by December end. Samco Dynamic Asset Allocation, HSBC Multi Asset Allocation and Shriram Multi Asset Allocation also ran high allocation to mid- and small-caps, hurting returns amid the market crash. Many of these affected funds did not hedge their equity allocation or did so Dynamic Asset Allocation, Motilal Oswal Multi Asset, Quant Dynamic Asset Allocation and Shriram Multi Asset Allocation, among others, had marginal or no hedging of existing equity positions at September-end. Samco MF's offering raised its hedged positions only later. At the other end, Edelweiss Multi Asset Allocation's fully hedged exposure to equities helped it stave off a choice of funds in this space is critical to your investing experience. In turbulent phases, an asset allocation fund truly serves its purpose if it allows you to keep your cool and not throw in the towel. It gives you the comfort of staying invested even during the tough times. By retaining your invested money, it provides you the platform to continue wealth creation irrespective of the market's is a good idea to look under the hood, insist experts. Acharya remarks, 'The asset allocation construct sounds appealing but what funds do within the portfolio is important. Not all asset allocation funds have the ability to contain downside. Some are more aggressive than others. Investors must know how the fund approaches asset allocation to know if it aligns with their expectations.'Given the role these funds play in the portfolio, experts reckon it is better to opt for funds adopting a moderate-toconservative stance. Avoid chasing returns in this category. Funds that emphasise on risk construct, rather than offering an edge in returns, should be your Belapurkar, Director, Fund Research, Morningstar India, asserts, 'We prefer strategies that take graded exposure to underlying asset classes, that moves within a narrow band. Funds moving from 20% to 80% in equities are essentially trying to time the market, which can deliver lumpier returns.' He emphasises that oscillating equity exposure may not always work in the funds' favour. 'If the fund model doesn't pull equity allocation back when market recovers, it can hurt the fund performance, erasing gains on the downside,' Belapurkar reckons asset allocation is highly personal and cannot be generalised. Instead of relying entirely on a single fund, investors may be better served by creating their own allocation using low-cost index equity funds, debt funds, and gold ETFs. 'This approach offers greater transparency, better control, and often lower expense ratios than packaged multiasset or balanced advantage funds, which may not suit every investor's profile or goals,' she argues.
