Balanced advantage vs. Multi Asset Allocation Mutual Funds: Which should investors choose?

Balanced Advantage / Dynamic Asset Allocation Funds
Live Events
Multi Asset Allocation Funds
Key differences
Which fund type should one choose?
Way forward for these categories
In the diverse universe of mutual funds , understanding the distinction between various hybrid categories is crucial to making informed decisions. Two popular choices for investors seeking a balanced risk-return approach are Balanced Advantage Funds (BAFs), also known as Dynamic Asset Allocation Funds (DAAFs), and Multi Asset Allocation Funds While both aim to manage market volatility and deliver consistent returns, they differ significantly in structure, asset composition, and investment philosophy. Here's a breakdown of how they work and how investors can choose between them.Balanced advantage funds or dynamic asset allocation funds are designed to dynamically shift between equity and debt based on changing market conditions. Fund managers use internal models that assess valuation metrics, momentum, and macroeconomic indicators to decide how much exposure should be allocated to equity or debt at any given time. The equity allocation in these funds can vary widely, typically ranging from around 30% to over 80%, depending on the fund house's model. The debt portion acts as a buffer, helping reduce volatility during market downturns.A unique advantage of BAFs is that many of them maintain an average equity exposure above 65%, often through arbitrage positions. This allows them to qualify for equity taxation, which is more favourable than debt taxation over the long term. The goal of these funds is to provide stable, equity-like returns while limiting downside risks through timely asset rebalancing. Investors who want market participation without full equity volatility often find BAFs an attractive core holding.Multi asset allocation funds, as per SEBI guidelines, are required to invest in at least three asset classes — usually equity, debt, and commodities like gold — with a minimum of 10% in each. This structure inherently provides broader diversification compared to BAFs, as the inclusion of non-correlated assets such as gold helps reduce overall portfolio risk.These funds typically maintain a mix where equity forms the core, supported by fixed income instruments and gold or other commodities. Unlike BAFs that dynamically change their equity-debt allocation based on models, Multi Asset Funds often rebalance periodically rather than tactically. The objective here is to deliver stable returns across different market cycles, relying on the varying performance of asset classes rather than frequent tactical shifts. For investors who believe in the long-term benefits of diversification across asset classes, multi asset funds offer a one-stop solution.The most fundamental difference lies in the asset mix. While BAFs primarily toggle between equity and debt based on valuation models, Multi Asset Allocation Funds include at least three asset classes and maintain a minimum allocation to each.BAFs are typically more dynamic, with frequent shifts between asset classes to respond to short-term market movements. In contrast, multi asset funds may follow a more stable rebalancing strategy, providing smoother returns but potentially lower agility during sharp market moves.In terms of taxation, most BAFs enjoy equity taxation because they maintain the required equity exposure through direct holdings or derivatives. Multi Asset Funds, however, may not always qualify for equity taxation depending on the actual breakdown of the portfolio, which could affect post-tax returns.All balanced advantage funds enjoy equity taxation which means investors who hold for more than a year pay 12.5% tax. In the case of multi-asset funds, some schemes that allocate more than 65% to equity enjoy equity taxation. However, there are some conservative schemes that have 35-65% allocated to equity, where investors who hold for more than 2 years pay tax at 12.5%, while those that sell before 2 years pay slab-based tax.Another distinction is that while BAFs usually exclude commodities, Multi Asset Funds mandate exposure to gold or other non-equity, non-debt assets, offering better diversification in times of inflation or global uncertainty.Balanced Advantage or Dynamic Asset Allocation Funds are ideal for investors who want active equity participation but with an in-built cushion during market downturns. These funds are particularly useful for conservative investors looking for equity exposure without fully bearing the volatility of the stock market. They are also suitable for long-term investors who prefer tax-efficient options and want the fund manager to adjust allocations based on market conditions.On the other hand, Multi Asset Allocation Funds are a good fit for investors who value broad diversification and want exposure to different asset classes like gold, which can act as a hedge during economic instability or inflation. These funds tend to be more conservative in their allocation and are appropriate for moderate-risk investors who believe in riding different market cycles through asset diversification rather than timing or tactical allocation.Both Balanced Advantage and Multi Asset Allocation Funds serve the purpose of managing portfolio risk, but through different mechanisms. While BAFs rely on dynamic shifts between equity and debt based on market signals, Multi Asset Funds take a more structured diversification route involving a broader set of asset classes.Your choice should ultimately depend on your investment goals, risk tolerance, and belief in either tactical allocation or strategic diversification. In many cases, combining both types within a portfolio can create a well-rounded investment strategy suited for various market conditions.If the investor has a medium- to long-term horizon, partial deployment in balanced advantage or multi-asset funds can serve as a middle ground, offering market participation with downside buffers,' Sagar Shinde, VP Research, Fisdom shared with ETMutualFunds.While sharing the way forward for multi asset allocation funds, Vishal Dhawan, CEO, Plan Ahead Wealth Advisors, a wealth management firm in Mumbai told ETMutualFunds that one can hold multi asset allocation funds in the portfolio especially in volatile markets as they can help preserve capital and deliver more stable returns over time compared to pure equity funds.'Gold, for instance, has emerged as one of the strongest-performing asset classes in recent years, especially during times of global uncertainty. Its presence in the portfolio can act as a natural hedge, offering protection when equities are under pressure. However, it is important for investors to understand the fund's asset allocation model and strategy as this will influence how the fund performs across different market cycles,' Dhawan adds.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Time of India

an hour ago

• Time of India

CMPDIL IPO timing hinges on Sebi feedback: Coal India Chairman

The decision on the timing of the IPO of Coal India arm CMPDIL is yet to be taken and a call on the next course of action will be after the initial comments from markets regulator Sebi on the draft papers filed recently. Coal Mine Planning & Design Institute Ltd (CMPDIL) had filed the draft red herring prospectus (DRHP) with Sebi last month. Speaking to reporters during a press conference here, Chairman-cum-Managing Manoj Kumar on Sunday said, "The DRHP has been filed. The decision on the next course of action will be taken after the preliminary comment of Sebi." Kumar was responding to questions on when the company is likely to go for the IPO. "We started this. We definitely want to proceed further as fast as possible but all processes are subject to clearances," he said. The issue will be entirely an offer for sale , as CMPDIL will not issue any fresh shares. Coal India Ltd (CIL) had said it is planning to sell up to 7.14 crore shares. CMPDIL renders its consultancy services to CIL and its subsidiaries in the areas of coal exploration, mine planning & design, coal beneficiation and utilisation, allied engineering services, environmental engineering, information and communication technology, and laboratory services, field services, etc. CMPDIL has appointed IDBI Capital Markets & Securities Ltd and SBI Capital Markets Ltd to manage the offering. The equity shares of the company will be listed on the BSE and the NSE.

Time of India

2 hours ago

• Time of India

Assam clears ₹5,400-crore pumped storage project

Assam cabinet has cleared the allotment of a self-identified PSP site to Hinduja Renewables Energy Private Limited for development of 900 MW off-stream Pumped Storage Project (PSP) in West Karbi Anglong District. With an investment of ₹5400 crores, this project will contribute towards achieving the state's target of 2 GW PSP capacity by 2030. The project will provide grid stability by storing excess electricity during low demand and releasing it during peak hours, enhancing energy security and supporting renewable energy integration. The State Cabinet has approved the establishment of ₹3000 crore SEBI-registered Assam Industrial and Green Growth Fund - an Alternate Investment Fund for Assam with Anchor Investment of ₹500 crore in phased manner so as to mobilise long-term capital for renewable energy, green infrastructure, priority Start ups, agro-tech, tourism, MSMEs and other priority sectors. The State Cabinet has approved the 'Shradhanjali' scheme for the Government to facilitate an easy, lawful and coordinated transportation of dead bodies who are of the domicile of the state of Assam from other states to Assam. The Policy will be implemented from 1st October, 2025. The scheme will be applicable primarily for youth engaged in low paying jobs outside the state, along with those who have died in special circumstances, such as murder and accidents. The scheme will not include cases of death during medical treatments outside the state. SB, Assam Police will be the Nodal Agency, wherein a DIG level officer will remain the Nodal Officer to ensure that bodies of residents of Assam are brought back with respect. Family members will inform through local administration, police, or by dialing 112. Moreover, a social media ID will be created dedicatedly for the purpose. The State Cabinet has approved the proposal to notify Urpad Beel area (1256 Hectares) as a Proposed Reserve Forest (PRF) under Section 5 of the Assam Forest Regulation, 1891, in Goalpara district. This ecologically sensitive and biodiversity-rich wetland will be protected and conserved to strengthen conservation efforts in Goalpara. The State Cabinet has approved the proposal to notify Hasila Beel area (245 Ha) as a Proposed Reserve Forest (PRF) under Section 5 of the Assam Forest Regulation, 1891, in Goalpara district. One month time will be given to the public to register their opinion etc. The State Cabinet has approved the formulation of the Assam State Mineral Exploration Trust Rules, 2025 for the creation of the State Mineral Exploration Trust (SMET) to promote exploration of minor minerals such as sand, gravel, stone, granite, limestone, quartzite, china clay, etc.

Business Standard

4 hours ago

• Business Standard

Best of BS Opinion: Startups get a boost, higher education needs a leg-up

Hello and welcome to BS Views, our newsletter that sums up today's opinion page. From Sebi's bold moves to the crisis in higher education, and from sustainability issues with rice farming to Iran's nuclear ambitions, today's pieces touch upon key issues that policymakers must grapple with. The Securities and Exchange Board of India (Sebi) board last week approved a co-investment vehicle (CIV) framework under the Alternative Investment Fund (AIF) regulations, amended rules governing Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs), and eased the delisting process for certain types of public-sector undertakings (PSUs). It also clarified norms on the issuance of employee stock ownership plans (Esops) in start-ups that plan to go public — a move that has brought relief to founders. These reforms, our first editorial argues, will make Indian markets more attractive for listings, improve the business environment for AIFs, and facilitate delisting for eligible PSUs. The latest QS World University Rankings show that India's higher education sector has recorded its best-ever performance on the global stage. Notably, seven of the eight new entrants from India are private universities — a sign of shifting dynamics in the country's higher education architecture. However, our second editorial cautions that quality remains a concern, and centres of higher education continue to face challenges such as faculty shortages, inadequate infrastructure, and underfunding. It calls for fast-tracking the regulatory frameworks recommended under the National Education Policy (NEP), strengthening public institutions, and addressing gaps in industry-academia linkages. Ajay Shah highlights a core principle of political science and international relations — the distinction between the principal and the agent, or the interests of the people versus those of the regime. In this context, he criticises the devastation caused by the Khamenei regime's pursuit of pride and nationalism in Iran. With no existential threats, Shah argues, Iran does not need nuclear weapons. Instead, the country must end state violence, focus on institution-building, and create conditions for peace and prosperity. Surinder Sud welcomes India's rise as the world's largest producer and leading exporter of rice since 2012. While newer rice strains have contributed to this growth, he warns that rice farming severely strains water resources and harms environmental sustainability. He recommends practices such as direct seeding and alternate wetting and drying of paddy fields, which can reduce water use by 30–60 per cent, lower greenhouse gas emissions, and cut fertiliser, pesticide, and labour requirements — all without sacrificing yields. Scaling up such technologies is critical for sustaining long-term rice production. Charles Finch reviews Leigh Claire La Berge's Fake Work: How I Began to Suspect Capitalism Is a Joke, calling it an early autopsy of a post-capitalist world. He observes that younger generations increasingly view capitalism as unsustainable. The book is a sustained meditation on the experience of corporate life — both its weakness and strength. Finch finds it earnest, repetitive, and at times wooden, but notes it is resolutely committed to its thesis. It offers a vision of a different life beyond the workplace — though the implication, he adds, is that only an apocalypse might make that fresh start possible.