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5 ways to make the most of balanced advantage funds

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Aarav Mehta

People who make decisions based on their emotions tend to underestimate their market protection. Most shareholders and investors buy stocks and mutual funds at high prices because they expect the market to rise further, sell too quickly, or never.

Global events frequently derail investment goals. To protect your money from the unstable economy, you could put it in a Balanced Advantage Fund, a type of mutual fund with a unique hybrid structure. The best ways to make use of Balanced Advantage Funds are outlined below.

 

What Are Balanced Advantage Funds?

Balanced Advantage Funds can dynamically modify asset allocation to reflect market conditions. For example, these funds invest in fixed income when the stock market is down or prices are high.

When markets grow, or equity prices are low, they invest in equities instead of fixed income. Balanced Advantage Funds' model-based strategy eliminates investors' behavioural biases. Here are some ways to maximise your Balanced Advantage Fund investment.

 

1. Put Down A Single Sum

As some self-styled financial experts advise, avoid the common mistake of trying to "time" the market.

Instead, investing a large sum of money at once and letting the fund manager decide how to allocate it is the best method to guarantee success in Balanced Advantage Funds.

Since markets are ever-changing, putting in a large quantity all at once will allow your money to be spread out more thinly and increase your chances of a positive return compared to making monthly SIP payments.

 

2. It Is Important to Understand How It Differs from Balanced Funds

Even though the names are similar, there are important distinctions to be made between Balanced Funds and Balanced Advantage Funds before making any investments.

While the former are required to divide their assets between debt and equity at a rate of between 40% and 60%, the latter have no such requirement and are free to allocate their funds however they see fit.

It means you can ride out market ups and downs without selling or buying.

 

3. Focus on Expansion and Capital Investment

Investments in Balanced Advantage Funds are designed to be safe in volatile markets and to gain during prosperous periods. Balanced Advantage Funds offer a glimpse of the other side for those who are impatient to grow at all costs or who are uncomfortable with equity exposure. It allows them to sit back and watch their investments grow steadily without worrying about losing everything in a bear run or missing the opportunity to jump in at the right time during a bull run. Of course, it would help if you felt confident in these areas to successfully invest in Balanced Advantage Funds.

 

4. Know your valuation approach.

Balanced Advantage Funds invert the conventional approach to stock valuation by instead considering the stocks' price-to-book (P/B) ratio. It is helpful because numerous financial gurus have stated that the P/B model is less volatile than the P/E strategy.

Knowing this is important because it is one of the less obvious advantages of using Balanced Advantage Funds.

 

5. Towards Greater Diversity

You, as an investor, need to be okay with dynamic allocation and confident in the fund managers' stock selection abilities. Over time, you'll notice that investing in both large- and small-cap companies gives you the optimum risk-to-reward ratio over a wide range of market conditions.

If you're getting scared off by market fluctuations, it could be best for you to invest in Balanced Advantage Funds and be patient over the long term.

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Aarav Mehta
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