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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.
Time of India
17-05-2025
- Business
- Time of India
Flexi Cap vs. Multi Asset Allocation Mutual Funds: Which one is best for you?
Flexi cap funds Multi asset allocation funds Live Events Here are key differences between these two mutual fund categories Feature Flexi Cap Fund Multi Asset Allocation Fund Asset class focus Only equity (large, mid, small caps) Equity, Debt, Gold/Commodities SEBI Mandate Min. 65% in equity Min. 10% in each of 3 asset classes Risk Level Moderately high to high Moderate Return Potential Higher over long term Balanced returns, lower volatility Portfolio Management Active stock-picking across market caps Asset rebalancing among asset classes Investment Horizon 5+ years 3–5 years Which one suits you best? Way forward for these categories With the growing variety of mutual fund options, investors often face the dilemma of choosing the right type of fund for their goals. Two popular choices that offer diversification and dynamic strategies are Flexi Cap Funds and Multi Asset Allocation Funds. While they may seem similar in terms of flexibility and diversification, they cater to different investor needs and operate under different Cap Funds are equity-oriented mutual funds that invest across large-cap, mid-cap, and small-cap stocks. These funds are designed to give the fund manager complete flexibility in allocating investments across market capitalizations, based on prevailing market to the SEBI mandate, flexi cap funds must invest a minimum of 65% of their assets in equity. The remaining allocation can vary, allowing the manager to shift between large, mid, and small-cap segments as opportunities arise. These funds are ideal for investors who have a long-term investment horizon (at least five years) and are comfortable with moderate to high risk. The dynamic nature of these funds allows them to adapt to changing market trends, making them suitable for growth-oriented Asset Allocation Funds aim to reduce portfolio risk by investing in at least three different asset classes — typically equity, debt, and gold or other commodities. SEBI mandates that a minimum of 10% of the portfolio be invested in each asset class. These funds are automatically rebalanced to maintain the asset mix, offering both stability and diversification. Since they are not purely equity-focused, multi asset allocation funds tend to have lower volatility and are well-suited for moderate-risk investors who are looking for consistent returns over a medium to long-term horizon (3–5 years).Choosing between the two depends on your financial goals and risk appetite. If you are aiming for higher long-term growth and are comfortable with equity market fluctuations, a flexi cap fund may be the right choice. However, if you're seeking a balanced investment with exposure beyond equities and lower portfolio volatility, a multi asset allocation fund could be more appropriate. In fact, many investors may benefit from holding both in their portfolio, using flexi cap funds for growth and multi asset allocation funds for balance and both fund types offer flexibility and adaptability, understanding their core structure and objective is key to making the right investment decision. Matching your investment horizon and risk tolerance with the right fund category will help ensure a more effective and aligned the flexi cap funds, Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance said that, 'A broad-based structural uptrend is yet to emerge. However, investors should continue to invest in flexi cap types of funds and let the fund managers do the stock picking of the sectors they are comfortable with. The selection of a good fund manager based on research and their investment philosophy will be very important.'While sharing the way forward for multi asset allocation funds, Vishal Dhawan, CEO, Plan Ahead Wealth Advisors, a wealth management firm in Mumbai comments 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,' he should always choose a scheme based on risk appetite, investment horizon, and goals.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@ alongwith your age, risk profile, and Twitter handle.
