The biggest unsaid rule of stock market investing is that as humans we are emotional beings. We believe that when the markets are rising, we must invest to take advantage of the stock market and the minute something goes wrong and the market crashes, we rush to liquidate our account with whatever losses we’ve had. But what if there was a way to eliminate this bias and also allow you to make the best of both bull and bear markets?
Enter Balanced Advantage Funds - the best way to hedge your investment in the current economic scenario, thanks to their hybrid nature. Here’s a quick introduction to Balanced Advantage Fund along with the best ways to make use of them.
Understanding Balanced Advantage Funds
Balanced Advantage Fund is a mutual fund category that change its asset allocation dynamically between equity and fixed income, according to market conditions. This type of fund reduces equity and increase fixed income allocations when there’s a bear market or equity valuations are unusually high. On the other hand, they will increase equity and reduce fixed income allocations when markets are rising or when equity valuations are low. Best of all, Balanced Advantage Funds are known to follow a model-based approach in which behavioural biases caused by humans automatically get eliminated.
Now that you know why you need to invest in them, here’s how you can make the most of your Balanced Advantage Fund.
1 – Challenge Your Investment Assumptions
The very nature of Balanced Advantage Fund is aiming to protect your investment in uncertain times and growth your wealth during bullish times. These funds, therefore, encompass a wide range of investors – from those looking for growth as well as those who are looking for stability. If your investment strategy doesn’t include either, then Balanced Advantage Funds can be a great learning experience as well as a sound investment decision that will need you to be comfortable with both these aspects whilst investing in them.
2 – P/E vs P/B
Most market analysis and stock recommendations look at companies’ price to earnings (P/E) ratio. However, Balanced Advantage Funds typically look at the price to book (P/B) value of stocks. This is advantageous as many financial experts say that P/B model is comparatively less volatile compared to P/E.
3 – Trust The Market
As an investor in Balanced Advantage Funds, you will need to be comfortable with the idea of market volatility as also trusting the fund managers’ choice of stocks at each turn. Do not be impatient if you don’t see growth too soon and don’t panic if the market slides as it currently is. Trust that the market and the stocks picked by the fund manager of your Balanced Advantage Fund will ensure that you get the best returns in the long term.
Keeping these pointers in mind, it’s definitely easier to pick a good Balanced Advantage Fund.
Disclaimer :- Mutual Fund investments are subject to market risks, read all scheme related documents carefully