Mutual funds cut equity’s share in balanced advantage funds

Balanced advantage funds typically alter their equity allocation between 30 per cent and 80 per cent, depending on levels of the PE ratio.

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Some fund houses have finetuned their investment process in their funds in this category by following a mix of valuations and direction of the market.
Balanced advantage funds — a mutual fund product category that invests in both equities and bonds — have pruned their allocation to stocks as the recent market run-up has made valuations rich. These schemes are structured to shuffle between equity and debt based on the outlook for the asset classes.

After touching a four-year low of Rs 7,511 on March 23, the Nifty has rallied over 50 per cent. This has caused the price to earnings (PE) ratio — a widely-watched valuation measure — of the Nifty to cross 32 times on Friday. India is the most expensive emerging market.

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Within the category, Kotak Balanced Advantage Fund has pruned its equity allocation from 79 per cent on March 25 to 50.95 per cent on August 20. ICICI Balanced Advantage Fund, the biggest scheme in the category with assets of 26,139 crore crore, has reduced its equity allocation from 73 per cent in March this year to 61.5 per cent by July-end. Motilal Oswal Dynamic Fund saw its equity allocation dip to 55 per cent in mid-August from 72.3 per cent in March. DSP Dynamic Allocation saw it fall from 67.3 per cent to 41.22 per cent in July-end.


“Earnings have been cut, valuations are up and sentiment has normalised. So, we have booked some profits leading to equity allocation coming down,” says Harish Krishnan, fund manager, Kotak Mutual.

Balanced advantage funds typically alter their equity allocation between 30 per cent and 80 per cent, depending on levels of the PE ratio. When valuations are high, they reduce their equity allocation and when low, increase it. The category has gained popularity among mutual fund investors, who want fund managers to handle the asset allocations between equity and debt.

Distributors believe balanced advantage funds are a good fit for investors looking for low volatility in returns.
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“Due to their low volatility, balanced advantage funds often form the core portfolio of many investors,” said Anup Bhaiya, chief executive officer, Money Honey Financial Services.

Some fund houses have finetuned their investment process in their funds in this category by following a mix of valuations and direction of the market.

Edelweiss Balanced Advantage Fund follows a pro-cyclical approach to decide equity allocation. The model uses price, flow and volatility-based indicators. This resulted in its equity allocation increase from 50 per cent in March to 68 per cent in July-end.

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