Time to buy? Mutual funds increase equity play

“The fall in the market has made stocks cheap compared to their current fair value which made us increase equity allocation,” says Vinay Paharia, chief investment officer, Union Mutual Fund.

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Balanced advantage funds typically alter their equity allocation between 30 per cent and 80 per cent, depending on market valuations measured by price-to-earnings (P/E) ratio.
The slump in the stock market has prompted balanced advantage mutual funds — a product that invests in a mix of equities and debt — to increase allocation to stocks.

ICICI Balanced Advantage Fund, the biggest scheme in the category with assets of Rs 28,853 crore, has increased its equity allocation to 58.5 per cent as of February end from 49.67 per cent in January. This is the highest equity allocation the scheme has had since December 2016. Kotak Balanced Advantage Fund, which manages Rs 3,719 crore of assets, saw its equity allocation rise to 48 per cent from 39.73 per cent in January 2010. Several other funds in the category like Union Balanced Advantage, IDFC Dynamic Equity, Motilal Oswal Dynamic Fund, L&T Balanced Advantage have increased their equity allocations in February during the last one month.

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“The fall in the market has made stocks cheap compared to their current fair value which made us increase equity allocation,” says Vinay Paharia, chief investment officer, Union Mutual Fund. Union Balanced Advantage Fund increased its equity allocation by 3.5 per cent in February over January to 55 per cent.


Balanced advantage funds raise or cut their exposure to stocks or bonds depending on the market conditions. When markets are expensive, these schemes usually lower equity allocations. These funds have been popular among retail investors in recent years because of their inbuilt flexibility to move between equity and debt.

“The need at such times is to be counter-cyclical and such a fund takes care of an investor’s assets allocation needs,” says S Naren, chief investment officer, ICICI Prudential Mutual Fund. Naren said balanced advantage funds take care of investors’ behavioural flaw to stay out of the market in times of uncertainty, which tends to rob them of an opportunity to bet on equities.

Balanced advantage funds typically alter their equity allocation between 30 per cent and 80 per cent, depending on market valuations measured by price-to-earnings (P/E) ratio. When valuations are high, they reduce their equity allocation and when low, increase it. However, some funds that follow a mix of valuations and momentum or are pro-cyclical have marginally reduced their allocation to equity in the month.
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Nippon Balanced Advantage Fund reduced its equity allocation marginally to 48 per cent in February from 50 per cent in January, while Edelweiss Balanced Advantage Fund reduced it to 40 per cent from 43 per cent in the same period.
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