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Balanced advantage funds (BAFs), also known as dynamic asset allocation funds , have grown more than threefold (in terms of assets managed) in the last five years, mainly because these funds can, in theory, skilfully navigate the volatility of a market.
How? BAFs can adjust their equity exposure based on market conditions. In times of uncertainty, they can play it safe by cutting back on equity to manage risk. Conversely, when the market outlook brightens, they can ramp up their equity allocation to seize growth opportunities.
Ultimately, it largely boils down to how the fund manager of these schemes views the market. If they are optimistic about the market's short- to mid-term potential, they may invest a larger percentage of investor money in equity; if they are lukewarm, they may choose to completely withdraw, maintaining zero equity exposure if deemed necessary.
Given that BAFs enjoy a lot of freedom, we wanted to check which BAFs have exhibited the most frequent shifts in equity exposure over the past five years.
The dynamic and steady BAFs
To identify which funds are more dynamic and which are steadier, we analysed the equity exposure of the 10 most popular BAFs (by AUM) over a five-year period, ranking them by standard deviation. Baroda BNP Paribas and Aditya Birla Sun Life BAFs were the most dynamic. Their equity allocation ranged from around 40 per cent to nearly 90 per cent during this time.
On the other end of the spectrum, Tata Balanced Advantage Fund and NJ BAF (launched just three years ago) have maintained relatively stable equity portfolios.
When examining the SIP returns of the dynamic and steady BAFs, it becomes clear that the results are mixed. There is no outright winner, though it's important to note that other factors can influence a BAF's performance.
Exploring the 'dynamic' and 'stable' BAFs
Top 10 BAFs by AUM ranked from lowest to highest standard deviation
| Fund | AUM (cr) | Standard Deviation | Minimum equity exposure (%) | Maximum equity exposure (%) | Median equity exposure (%) | 5-year SIP Return (%)* |
|---|---|---|---|---|---|---|
| Tata Balanced Advantage Fund | 10,453 | 4.63 | 39.53 | 59.57 | 47.68 | 16.49 |
| NJ Balanced Advantage Fund | 4,254 | 5.35 | 47.98 | 70.02 | 54.57 | 20.85 |
| Edelweiss Balanced Advantage Fund | 12,690 | 5.55 | 50.24 | 78.01 | 69.65 | 18.17 |
| SBI Balanced Advantage Fund | 32,941 | 6.33 | 30.37 | 51.77 | 42.63 | 18.84 |
| Nippon India Balanced Advantage Fund | 8,950 | 7.39 | 38.01 | 72.54 | 55.11 | 16.95 |
| ICICI Prudential Balanced Advantage Fund | 62,051 | 9.75 | 33.39 | 74.06 | 43.05 | 16.57 |
| Kotak Balanced Advantage Fund | 17,206 | 9.87 | 30.87 | 76.50 | 48.36 | 15.92 |
| HDFC Balanced Advantage Fund | 96,536 | 9.97 | 49.98 | 83.87 | 65.87 | 26.56 |
| Aditya Birla Sun Life Balanced Advantage Fund | 7,701 | 10.74 | 39.68 | 83.77 | 54.12 | 16.91 |
| Baroda BNP Paribas Balanced Advantage Fund | 4,187 | 11.86 | 36.50 | 87.09 | 60.86 | 18.95 |
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* The standard deviation is based on the monthly net equity exposure over the last five years. Note: NJ Balanced Advantage Fund and SBI Balanced Advantage Fund were launched in 2021, so all data is for three years for these funds. Also, the first three months' portfolio deployment is excluded. All data is as of August 31, 2024, except SIP returns, which are as of October 13, 2024 |
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Our take
We tend to favour funds with lower dynamism that maintain a stable, predictable range. This gives investors more confidence in asset allocation over time; it also avoids the uncertainty of sudden market shifts.
Also read: 11 funds are losing their faith in this red-hot market
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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