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Are balanced advantage funds protected from the downside risk?

These funds allocate some portion of their money in equity, so the magnitude of impact would vary significantly across different funds, says Ashutosh Gupta

Are balanced advantage funds protected from the downside risk, for instance, the kind of dip we saw in March 2020?
- Amar Shahane

No, balanced advantage funds are not entirely insulated from the ups and downs of the equity market because they invest a certain portion of their money in equity. Therefore, they would be subjected to it. But having said that, the magnitude of ups and downs that they witness tends to be relatively lesser than all-equity funds because these funds, as I said, allocate only a portion of their money into equity markets.

Now, there is no one-size-fits-all here because if you look at balanced advantage or dynamic asset allocation as a category, different funds vary significantly in terms of their equity allocation. If we look at their latest portfolio disclosures, the net equity exposure of these funds varies from as low as about 25 per cent to as high as over 80 per cent. That's why the magnitude of impact that they would have if the markets were to fall tomorrow would be grossly different. Not only that. Even at a fund level, a fund might face different impacts of a market fall at different points in time. That's because these funds manage their equity allocation dynamically, and the proportion of the money that they invest in equities can be different at varied points in time. Therefore, to answer the question more broadly, they would be subjected to the ups and downs in the equity market. But the magnitude of impact would vary significantly across different funds.

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