Odd Peak

How does an SIP in a balanced advantage fund creates and protects the wealth of investors?

As an investor, it can be challenging to decide between investing in stocks that may produce higher returns but also present more volatility or investing in bonds for greater stability but generally lower returns. A balanced advantage fund offers investors an opportunity to capitalise on equity growth while mitigating their risk with bonds. 

Balanced advantage funds are hybrid mutual funds that follow a dynamic asset allocation strategy by using both stocks and bonds depending on present market conditions. The fund manager continually shifts the conservative (bonds) and aggressive investments (equities) to maintain a balanced investment portfolio throughout market cycles. 

When combined with Systematic Investment Plans (SIPs), investors can potentially maximise wealth creation opportunities while protecting themselves against market volatility. Here is how.

  • Eliminates market timing

By dynamically managing asset allocation between equity and debt, balanced advantage funds aim to reduce the risk associated with timing investments. And with regular SIPs, investors can capitalise on short-term gains while avoiding long-term losses, by investing during bear markets when stock prices are low and then switching to debt instruments during bull markets when stock prices are high. Additionally, by diversifying the mutual fund investment portfolio across both stocks and bonds, investors can spread their risk more effectively while still achieving positive returns over time. 

    • A balanced mix of stocks and bonds 

Another benefit of investing through SIPs in balanced advantage funds is that they provide investors an affordable access to stocks and bonds without having to manage each type of investment separately. This allows investors who may not have the expertise required to manage multiple investments effectively and to capitalise on them without taking on undue risks.

  • Dynamic allocation as per current market condition  

Balanced advantage funds are managed dynamically and provide greater control over risk management than those funds which use static allocations between stocks and bonds. In order to maximise returns or minimise risk, fund managers can structure SIP investments and adjust the stock-bond ratio based on market conditions. This means that while some parts of an investor’s portfolio may be invested heavily in equities when stock prices are low (and potentially generating higher returns), other parts will be invested more conservatively into debt instruments when stock prices are high (thus reducing overall risk exposure). 

This way, investors can benefit from the best possible SIP mutual fund returns while maintaining prudent risk exposure levels throughout their investment tenure.  

  • Equity focused for long-term returns 

One of the most effective ways to grow investments over time is with equities. That’s why it’s important for any investor to have some exposure to stocks in their portfolio—but it can be difficult to know how much to invest without taking too much risk.

A balanced advantage fund helps manage this problem as the fund manager invests across different asset classes, market capitalisations, and sectors with a focus on equities depending on the prevailing stock market conditions and allows investors to benefit from long-term returns without overexposing themselves to short-term risks and volatility.  

Moreover, when investors invest in mutual funds through the SIP mode, they can set up auto payments to invest small amounts regularly, no matter what their current financial situation is or how far away their goals are, providing them access to the market at reduced risk if markets experience corrections. 

Closing thoughts

Taking the disciplined and calculated approach of SIP investments in a balanced advantage fund can be a reliable way to grow one’s wealth over time, given the benefits such as lower investment amounts and rupee-cost averaging. To make the most out of their investment, investors should also use an SIP investment plan calculator, which clears out many uncertainties and estimates their returns on SIP mutual funds.