Balanced Advantage Fund: A stepping stone for investing in equities

Currently there is high volatility in the market due to fear of coronavirus pandemic and has rattled the equity markets world over. It is natural for retail investors to panic at such times given that such sharp corrections don’t generally occur. Individuals who have witnessed the 2008 correction too were taken aback by the swiftness in market correction seen in Indian indices.
For those investors invested in dynamic asset-allocation funds, especially balanced advantage category of funds, the impact has been minimal. The reason – Such funds cut back on their equity exposure as markets scaled higher levels. A key advantage of these funds is that to manage risk and reduce it they invest in different assets such as bonds and equity. Hence, for a vast majority of investors who would like to tailor investments depending on equity markets, these funds prove to be both profitable and defensive. And one of the oldest and a consistent performer in this category is the ICICI Prudential Balanced Advantage Fund.
A valuations-first strategy: Dynamic asset-allocation funds factor in market valuations before investing in various assets.
An important criterion which helps decide when one should move intoequities is the underlying market valuation or markers such as price-earnings or price-to-book value.
Suffice it to say, dynamic asset-allocation funds raise the investing strategy several notches. They not only give the investor an advantage of booking profits in stocks, but also ensure that any downside is protected.
Sidesteps emotions: In times of a market correction, usually the investor reacts in the extreme, which is to sell all the holdings, instead of accumulating at lower levels. So, here the decision is based on emotions. By investing in dynamic asset-allocation funds, one gets to sidestep emotion based investments.
Suitable for…Owing to the nature of the product, this type of a fund can be used as a stepping stone when it comes to investing into equities. A risk-averse investor can also consider investing in this fund. Ideally one should consider having this category of fund as a core part of one’s portfolio. In the current market environment, for those looking to make lump sum investment can consider locking in money into this fund, given the inherent asset allocation exercise.
-Ravi Kumar
Mutual Fund Distributor