Although Indian equity markets have digested several negative macroeconomic factors and shown resilience (given the global outlook), rising volatility remains an ever-present threat to an investor’s portfolio, at least for the foreseeable future. This has caused justified concern among investors who are increasingly swayed by market noise and damning numbers. While investors are aware of the importance of portfolio diversification to be able to prevent any direct threat to their investments, the number of options available in each asset class can become difficult to understand and balance. In such cases, a Balanced Advantage Fund can be beneficial to an investor’s portfolio.
The cyclical nature of the market has historically demonstrated that no asset class behaves the same. Ideally, the lower the correlation between two asset classes, the better an investor’s chance of creating a balanced portfolio. Since the equity-to-debt ratio is determined dynamically, these funds tend to have the flexibility to better handle volatile market conditions and, therefore, rank for core allocation in a portfolio’s portfolio. investor.
To tell us more about this investment category and why it’s emerging as a popular choice today, YourStory caught up with Anupam Tiwarifund manager, Axis Mutual Fund.
Balanced Advantage Fund – A potential hedge against volatility
As the name suggests, a Balanced Advantage fund would balance the asset allocation between equities and fixed income securities in a particular pattern based on the prevailing market scenario. The asset allocation in a Balanced Advantage fund ranges from 0% to 100% towards equities or fixed income securities, giving the fund manager flexibility to shift the allocation as the market fluctuates. For example, if stock markets experience a sharp and sudden drop, a Balanced Advantage fund will increase the equity allocation, and when markets heat up and valuations rise above comfort, the fund will reduce the equity allocation.
Explaining how the fund’s dynamic balancing contrasted it with other market cap funds, Anupam said: “In a regular mutual fund product – a large cap fund, a mid cap fund or a small capitalization, the equity allocation remains fixed or changes minimally. For example, in a large-cap fund, the equity allocation will move between 90-100% depending on the situation, and so you always stay invested. Therefore, you have slightly higher volatility in your portfolio.
“However, in a balanced benefit fund, the equity component of the portfolio moves in a large quantum,” he mentioned, explaining how the fund’s momentum factor which aims to provide a cushion for investors to combat market volatilities market .
Algorithms and models for optimal asset allocation
Most fund houses have their in-house mathematical models that decide equity and debt allocations. The countercyclical allocation model, for example, increases equity allocation by reducing debt allocation in falling markets and reducing equity allocations in rising markets. These patterns strive to buy low and sell high. The procyclical model, on the other hand, tries to follow market trends and thus increases the equity allocation in bull markets while reducing it in bear markets.
Talking about how the Axis Balanced Advantage Fund, Anupam mentioned, “The The portfolio is structured to provide opportunities for capital appreciation through equity exposure and to generate income by investing in fixed income securities. We determine the percentage of stocks based on three key factors, namely valuation, volatility and momentum. »
“Our belief is that in a highly volatile environment you have to be conservative and in a low volatility environment we have to be slightly aggressive. We try to link fundamentals to market sentiment. And as a result, we designed an algorithm that gives us a location of stocks in the portfolio,” he said.
Anupam also explained that the fund is primarily a large cap portfolio to be able to hedge risk. “Our belief is that people who fall into this particular category are those who want less volatility. And therefore large cap allocation makes sense, ideally,” he said. duration of fixed income securities are determined using a top-down approach. After analyzing the comfort on the domestic and global macros, the asset allocation is decided. Our bond allocation has a bias towards high quality instruments, which is why our portfolio is heavily focused on high quality liquid assets (GSECS/SDL/AAA PSU) with a relatively smaller allocation on credits. Investments are also heavily focused on the 2-5 year duration, in line with the lower volatility fund’s strategy,” he added.
An attractive investment tool for all seasons and all majority investor profiles
Often called “all-weather funds” because of their dynamic allocation strategies, Balanced Advantage funds have the potential to be attractive to new and seasoned investors looking to balance their portfolios with lower volatility. Even those looking for an aggressive alternative to pure debt funds, or those who wish to entrust their asset allocation to an expert can invest in these funds.
“I think every investor who has a conservative risk appetite and therefore wants lower volatility in their portfolios can consider this product. Balanced Advantage funds aim to provide a drawdown cushion and therefore anyone from new investors to seasoned investors, or even those close to retirement, could definitely take advantage of the fund’s benefit,” Anupam said.
How to invest in the Axis Balanced Advantage Fund
The Axis Balanced Advantage fund follows the same process as any other mutual fund and is available on all platforms, including the Axis Mutual Fund app. The minimum request amount is INR 500 and in multiples of INR 1/- thereafter for lump sum investments. Investors can also invest through the SIP route in which the minimum request amount is INR 100 and in multiples of INR 1/- thereafter, with a minimum number of six installments.
“We are available online – you can just log on to a website and start your investment process. We also have the Axis Mutual Fund app where you can invest. You can also contact any advisor in our branches said Anupam, speaking of the ease of access to the fund.
Source: MF Research Axis
Product labeling and risk indicator:
*Please refer to SID Asset Allocation and Investment Strategy
**Investors should consult their financial advisors if in doubt as to whether the product is suitable for them
To note: Market capitalizations are defined in accordance with SEBI regulations as follows: a. Large Cap: 1st to 100th company in terms of full market capitalization. b. Mid Cap: 101st – 250th company by total market capitalization. vs. Small Cap: 251st company and more in terms of full market capitalization.
To note: The opinions expressed by the fund manager are individual in nature and are intended to share information only. The sector(s)/stock(s)/issuer(s) mentioned in this presentation are for illustrative purposes only and should not be construed as a research report/buy recommendation /sale/holding. The Fund Manager may or may not choose to have a future position in such sector(s)/security(ies)/issuer(s). Investors are urged to consult their financial, tax and other advisers before making any investment decision.
Disclaimer: This press release represents the views of Axis Asset Management Co. Ltd. and should not be relied upon as the basis of any investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited, nor Axis Asset Management Company Limited, its directors or associates shall be liable for any damages, including loss of income or loss of profits which may arise from reliance on the information contained in the present document. Investors are urged to consult their financial, tax and other advisers before making any investment decision. Statutory Details: Axis Mutual Fund was established as a trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability limited to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment manager: Axis Asset Management Co. Ltd. (the CMA). Risk Factors: Axis Bank Limited is not responsible for any loss or loss of profit resulting from the operation of the system. No representations or warranties are made as to the accuracy, completeness or fairness of the information and opinions contained herein. CMA reserves the right to make changes and alterations to this statement as needed from time to time.
The above information is included for general information only and does not constitute legal or tax advice. Given the individual nature of the tax consequences, each investor is advised to consult their own tax adviser regarding the specific tax implications arising from their participation in the Scheme. The tax advantages for the mutual fund and the unitholder are in accordance with applicable tax laws, as certified by the mutual fund consultant. Any action taken by you based on the information contained herein is your sole responsibility. Axis Mutual Fund will in no way be liable for the consequences of such action on your part. The information contained herein is not intended to constitute an offer or solicitation for the purchase and sale of any Axis Mutual Fund scheme.
Past performance may or may not be sustained in the future.
The stocks/issuers/sectors mentioned above are indicative only and should not be construed as recommendations.
Investments in mutual funds are subject to market risk, read all plan documents carefully.