Are balanced advantage funds managed dynamically?
The category manages more money than most pure equity mutual fund categories, barring multi cap and large cap categories
Balanced advantage fund or dynamic asset allocation category is the second biggest among the hybrid funds categories managing assets worth Rs 91,318 crore as on August 2019. The category manages more money than most pure equity mutual fund categories, barring multi cap and large cap categories.
Why do some mutual fund advisors believe that this mutual fund category is the panacea for all troubles with the stock market? Most of them are in love with the Sebi definition of the category: the market watchdog defines it as ‘investment in equity or debt that is managed dynamically.’
This means that the fund managers of these funds are free to change their equity and debt allocation as per their own discretion. These mutual fund advisors believe the strategy takes care of most troubles faced by regular mutual fund investors. In other words, they are confident that mutual fund manages would be able to take care of many troubles by their active fund management.
But, did this really happen? Were these schemes managed their assets dynamically? For example, did these schemes changed their exposure to equity when the market was on an upswing and vice versa?
Well, the data shows that these schemes are being managed dynamically and the fund managers have been sticking to their mandate. See the chart below for the dynamic equity allocation of the schemes in the category. The data is for the biggest schemes with an AUM of over Rs 2,000 crore as on August 31.
Source: Mutual fund monthly factsheets
However, despite following the mandate, these schemes have failed to perform as widely expected. But they achieved one very important feat: they succeeded in protecting the downside better than pure equity categories.
The data shows that the category on an average gave -0.34 per cent in the last one year as against -4.90 per cent given by large cap category, -6.34 in the multi cap category. Other categories delivered even worse.
Mutual fund advisors believe this category is suitable for those who emphasize more on protecting the downside.
“If you are an investor who is fine with gaining less while the markets gain but want your investments to fall less in the bearish markets, you can go for this category of funds,” says Joydeep Sen, founder, wiseinvestor.in. However, if you have a long term horizon and do not care about the short-term volatility, you can opt for pure equity funds to gain more.
Some mutual fund analysts believe that we need to wait for some more time to understand this category.
“This category was introduced last year only at the time of re-categorisation, we need to give it some more time to fully understand what strategy the fund managers are going to follow. So maybe we need a couple of more years to understand how the fund managers handle it,” says Gourav Kumar, Principal Research Analyst, FundsIndia.com