- Achieve retirement goals through balanced advantage funds

Achieve retirement goals through balanced advantage funds


The Indian economy has recovered faster than expectations. Higher levels of fuel, electricity consumption, stable to rising freight rates and improving MH&CV sales are testimony to that. Also, with the improved macro-economic data point, corporate India has shown exemplary resilience in bouncing back from the lock down period. Sales have increased along with margin expansions, and a low base could see earnings continue to surprise. Lower interest rates globally and printing of money could see FII inflows continue to remain strong as they seek better returns. Hence, continued liquidity, strong macro data points and better corporate profitability could keep markets elevated. The big risk that could be looming, is inflation. Covid has taken a toll on the unorganised sector, which does play some role in every value chain across industry. Supplies have got disrupted, as some of the businesses in the unorganised segments have gone down under, impacting supply chains. The inability of supply chains to keep up with demand could lead to inflationary pressures. Having said that, given the weak global economic scenario, Central banks would ideally be laggards in raising rates, rather than being proactive.

Hence, here comes the Balanced Advantage Fund, a fund that dynamically manages asset allocation across equity and debt, based on the valuations of the equity markets. This follows the ‘buy low and sell high’ model in the equity markets for long term wealth creation. It is an excellent investment solution for investors. A model-based approach helps in automatically rebalancing investments between equity and fixed income in a tax efficient manner without the investor having to keep track herself.

Usually, other mutual fund categories like equity funds change their asset allocation according to the changing economic conditions while balanced advantage funds strictly behave in line with their orientation not going beyond the limit prescribed in the investment mandate. While investing in a balanced advantage fund, an investor should consider the following – risk, return, cost, investment horizon, financial goal, tax on gains.

Advantages of Balanced Advantage Funds:

  1. Asset Allocation Model followed by the fund is counter cyclical in nature. It reduces exposure to the equities as markets rise and vice versa. The assets in such a fund are dynamically managed between equity and debt. However, an investor finally gets to buy low and sell high through this fund.
  2. It takes care of one’s asset allocation needs.
  3. Investors can opt for SIPs into balanced advantage funds for meeting long-term goals such as child’s education, marriage or for one’s retirement.

These funds are ideal for an evolving generation of professionals and entrepreneurs who may not want to be tied down by traditional careers; for those who intend to have a dynamic career based on different skills, take risks to pursue business ideas, refuse to be boxed in by conventional income pursuits, and are looking for investment options that offer downside protection without compromising on the return potential. It is also for people who are young with years ahead of them, still do not want to take a conventional approach and risk on their investment corpus; investors who prefer to be smart about dynamically managing their investments to optimise their returns. And lastly, investors looking for a Tax-efficient dynamic asset allocation model.

Below are the benefits of investing in a Balanced Advantage fund to achieve your retirement goal:

  1. Asset Allocation - It has asset allocation built into it. It is something that is timeless in terms of achieving a good outcome with your investments and this is one category that has it automatically built into it
  2. Builds Discipline - It builds you discipline. You need to balance your asset allocation through up and down market cycles. It automatically resets the equity and fixed income allocation hence helping to build discipline.
  3. Gives better downside protection - Investors who seek less volatility often choose balanced funds because they provide income from the bond allocation for a portfolio. Bonds generate more steady returns and usually do not face a lot of volatility like stocks.
  4. Good Return - Balanced advantage funds allow you to get a better return per unit of risk that you’re taking in your exposures. Since we can’t time the market as investors chase returns, BAF allows to get a better return per unit of risk that you’re taking in your exposures.
  5. Equity tax benefit - A tax-optimised category as well rather than investor trying to do it with one equity and one fixed income and moving in and out, this is a category that’s designed so that you have your equity tax benefit already embedded in the product.

Thus, it can be concluded balanced advantage funds offer the stability of investment corpus and alpha —both of which are vital for retirement.

Hence, one should invest in Balanced Advantage Funds because with significant lower volatility they aim to deliver long term returns closer to equity funds. It aims to provide stability and regular income through exposure to fixed income instruments. It offers higher tax efficiency than asset allocation implemented by the investor himself. It is well defined and time-tested models without any biases. Lastly, it’s a combination of potential capital appreciation, capital preservation and volatility control.

This article is authored by Aniruddha Naha, Sr. Fund Manager – Equity, PGIM India Mutual Fund

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All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/redress complaints, visit This is an investor education and awareness initiative by PGIM India Mutual Fund. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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