mutual fund scheme Choosing is an important investment decision. This can be especially difficult for new investors when they are faced with a variety of mutual fund schemes. Balanced Fund vs Balanced Advantage Fund is one of those many options in which investors invest money but do not understand the difference between the two. Let us know what are the similarities between these two funds and which one is better?
Before knowing about Balanced Fund and Balanced Advantage Fund, let us look at the three main types of mutual fund schemes.
- equity fund Equity mutual funds are funds that invest money in shares of companies.
- debt fund – Debt mutual funds are mutual fund schemes that invest money in other fixed income instruments including bonds and government securities.
- hybrid fund Hybrid mutual funds invest in multiple asset classes like equity and debt.
What is a balanced fund?
Balanced funds are a type of hybrid mutual funds that invest in debt and equity. As the name suggests, balanced funds invest in balanced proportions across asset classes. The funds follow a 60%-40% ratio while investing. This means that the fund allocates 60% of the fund to one asset class, while the remaining 40% invests in equity and debt. There may be changes in the allocation of funds, but only by 20%. As a result, the segment with 60% funds can be brought down to a minimum of 40%, and the 40% segment can be allocated a maximum of 60% funds.
What is Balanced Advantage Fund?
Like Balanced Fund, Balanced Advantage Fund (BAF) is also a type of hybrid mutual fund that allocates funds to both equity and debt. However, these Balanced Advantage Fund The main feature is that there are no restrictions on asset allocation. These funds are also called Dynamic Asset Allocation Funds. Balanced Advantage funds are dynamic and allocate funds based on market movements. For example, when markets are at their peak, funds may reduce allocations to equities and shift them to debt. This helps preserve capital while generating income even during downturns.
Which fund has more risk?
Since both these funds invest in equity and debt, there are risks associated with them. Equity performance is related to the overall performance of the market, highlighting the importance of diversifying across different companies. Balanced Advantage funds are better at handling risk as these funds can rebalance their portfolio as per the market performance. These funds can reduce their equity exposure at times of poor market performance, whereas balanced funds are unable to do so.
Where do you get more returns?
For any investment, returns are an important metric. Since balanced funds must allocate funds in predetermined specific proportions, they may not have the flexibility to adapt to changes in the market. As a result, Balanced Advantage funds provide better returns in market conditions and help preserve capital when markets are not performing well.
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