What are the disadvantages of balanced advantage funds? (2024)

What are the disadvantages of balanced advantage funds?

Disadvantages of Investing in a Balanced Advantage Fund

Higher Expense Ratio: Balanced Advantage Funds have a higher expense ratio compared to pure equity funds. This is because these funds employ a dynamic asset allocation strategy, which requires active management and therefore higher costs.

Lower returns than Equity-oriented funds: While balanced advantage funds might be a safer way to participate in the stock market, the safety comes at a cost. Most balanced funds underperform equity mutual funds, especially during bull markets, because a portion of their investment is still dedicated to debt funds.

A balanced fund is attractive to investors with low-risk tolerance because the fund's growth outpaces inflation and provides steady returns. While balanced funds are a comparatively conservative investment strategy, they are still not 100% risk-free because bonds will fluctuate if interest rates change.

Disadvantages of Balanced Mutual Fund

Considering the allocation of assets, they might still remain susceptible to moderate price fluctuations, which can be disadvantageous for investors with a low tolerance for risk.

Balanced funds are comparatively low-risk investments compared to equity mutual funds, but they are not 100% risk-free. The debt components of balanced funds are subject to credit and interest rate risks.

Whereas people who are retiring with more typical time horizons, so people retiring with 25- or 30-year time horizons, are better off with portfolios that are balanced in nature. The 60/40, the 50/50, even the 40/60 portfolio tends to support the highest safe withdrawal amount.

Which balanced advantage fund is best?

1. Current NAV: The Current Net Asset Value of the HDFC Balanced Advantage Fund as of Feb 12, 2024 is Rs 440.24 for Growth option of its Regular plan. 2. Returns: Its trailing returns over different time periods are: 38.15% (1yr), 23.1% (3yr), 19.5% (5yr) and 18.55% (since launch).

Balanced funds suit investors aiming for gradual, long-term wealth growth with less concern about rapid market fluctuations. On the other hand, balanced advantage funds are better for those comfortable with a bit more risk, seeking higher returns when markets are strong.

Generally, equity funds are known to inherently carry the highest risk, followed by hybrid funds and, finally, debt funds. There can be variations in risk levels within the category of equity funds, too.

Equities and equity-based investments such as mutual funds, index funds and exchange-traded funds (ETFs) are risky, with prices that fluctuate on the open market each day.

You will also be able to create a balance sheet. The three limitations to balance sheets are assets being recorded at historical cost, use of estimates, and the omission of valuable non-monetary assets.

Over the long term, balanced portfolios have provided a Goldilocks-like solution for investors who can't stomach the volatility of only owning stocks but require higher returns than fixed income to meet their objectives.

Balanced mutual funds are geared toward investors who are looking for a mixture of safety, income, and modest capital appreciation. Typically, retirees or investors with low-risk tolerance utilize balanced funds for healthy growth and supplemental income.

Answer: As per SEBI, balanced funds must have 50% to equity and 50% allocation to fixed income instruments (debt and money market).

Balanced funds are suitable for a medium-term horizon and are ideal for investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts this type of mutual fund invests into each asset class usually must remain within a set minimum and maximum.

Which is better hybrid fund or balanced advantage fund?

Conservative hybrid/equity savings funds can be used by retirees or medium-term investors who have a high risk appetite. If you are a new investor or are risk-averse, go for balanced advantage funds.

One important disadvantage of a savings bank account is that the interest rates offered by the bank are variable. This means that the bank has the right to make changes to the interest rate.

Savings account benefits include safety for your savings, interest earnings and easy access to your money. However, savings accounts may have drawbacks, such as variable interest rates, minimum balance requirements and fees.