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Summary: Markets have taken a breather. Small-caps are in the red. Retail investors are nervous. Yet, quietly, mutual funds seem to be jacking up their net equity exposure. We checked how India’s top balanced advantage funds have been repositioning this year, and it reveals a lot about where fund managers think the next move will be.
In recent years, Indian investors have largely seen the market go only one way: up.
Since April 9, 2020, the Indian stock market (represented by Nifty 500 TRI) has grown at a brisk 24.3 per cent annualised rate. For context, that’s a quantum leap from the measly 1.8 per cent seen in the preceding five years.
This phenomenal post-Covid has spawned an entire generation of investors who’ve only known the friendly side of Mr Market. Sure, there have been a few hiccups along the way — like the mild correction earlier this year — the ride has been largely smooth.
But in 2025, that momentum has slowed, at least relative to the previous years. The market is up just about 6 per cent this year, and small-caps are in the red. For many, this sideways movement of the market feels alien to many investors, prompting questions about the next plan of action.
So, we turned to see what mutual fund houses (also known as asset management companies) are thinking. Are fund houses still bullish on Indian equities, or are they quietly tapping the brakes?
Reading the market mood through Balanced Advantage Funds
There are several ways to gauge fund managers’ sentiment. One barometer is to look at Balanced Advantage Funds (BAFs), also known as dynamic asset allocation funds.
These are hybrid funds that invest in both equity and debt but unlike traditional funds, their mix isn’t fixed. They dynamically adjust allocations depending on market conditions.
When markets look frothy, they cut equity and move to debt. When valuations look attractive, they turn contrarian, buying into equities when others are fearful. Fund houses say this dynamic strategy helps them capture upside and cushion downside, making them popular with investors who prefer flexibility over rigidity.
In fact, there are two levers that make BAFs stand out:
1. Flexibility: They tweak exposure based on market valuations, interest rates, and macro indicators. When stock valuations run high, they shift towards debt; when markets dip, they return to equities.
2. Hedging: BAFs often hedge a portion of their equity holdings using derivatives. This not only protects against market volatility but also helps them maintain tax-efficient “equity” status.
Because balanced advantage funds actively shift between equity and debt depending on how their fund managers view market conditions, their allocation pattern serves as a good indicator of sentiment. When they increase equity exposure, it usually signals confidence in the market’s prospects; when they trim it, it shows caution. To understand the current mood, we examined all Value Research–rated balanced advantage funds to see whether they have increased or reduced their net equity exposure so far this year.
What the data says
What we found
- 22 of 26 funds have increased their equity exposure this year, which can loosely translate to fund houses being bullish about Indian equity. In fact, the correction earlier in the year may have given the funds an opportunity to buy more stocks at an attractive valuation.
- The 27th fund (PGIM) made no change.
- Only four balanced advantage funds — ABSL Balanced, HSBC Balanced, and Kotak Balanced — reduced exposure, and only HSBC’s cut (6 per cent) stands out.
- Another interesting aspect is that only six funds have less than 50 per cent net equity exposure, as of September 30, 2025. That said, this may be down to different fund houses having different risk-reward profiles.
Funds that raised equity exposure by more than 10 percentage points
- Motilal Oswal Balanced Advantage (upped their net equity exposure by 34 per cent this year)
- NJ Balanced Advantage (up 11.1 per cent)
- Shriram Balanced Advantage (10.8 per cent)
- SBI Balanced Advantage (10.2 per cent higher)
Funds that reduced exposure by more than 10 percentage points
None.
Funds with minimal changes (2 per cent up or down)
- Franklin India Balanced Advantage (0.3 per cent)
- Bandhan Balanced Advantage (-1.7 per cent)
- Kotak Balanced Advantage (-0.5 per cent)
- Union Balanced Advantage (+1 per cent)
- Bank of India Balanced Advantage (+0.9 per cent)
- UTI Unit Linked Insurance (+1.1 per cent)
- Mahindra Manulife (+2 per cent)
The last word
If Balanced Advantage Funds are a reflection of fund-house sentiment, then the message is clear: they aren’t afraid of Indian equities even at a time when the market has moved sideways. In fact, eight of the nine funds that are rated four stars and more have increased their net equity exposure.
So, while retail investors may be getting jittery about the market’s pause, mutual funds are looking to still swear by Indian equity.
For more such insights, keep reading Value Research and Mutual Fund Insight, a personal finance magazine that answers some of the burning questions of the day.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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