14 Jan 2023
Let’s start with what Balanced Advantage Funds are – they are hybrid schemes that invest in both equity and debt, and dynamically change their allocation between the two asset classes based on market conditions with an aim to protect the downside, if any, and provide a better risk–return ratio to investors.
There are generally four major sources of return dispersion, of which asset allocation is the single largest source of return for such funds.
In this article, let’s understand the mechanism for Kotak Balanced Advantage Fund and how its returns have been generated historically.
In the last four years since inception, the allocation to net equity in the Kotak Balanced Advantage Fund has ranged from as low as 20% to as much as 80%, depending on market conditions. The net equity level in the fund is determined by a combination of trailing valuations and market sentiment. ^
Below is a chart showing the net equity allocation of the Kotak Balanced Advantage Fund vis-à-vis the movement of the Nifty 50 since August 2018: ^
The chart shows that in instances where the Nifty 50 has seen a correction, the allocation to net equity in the Kotak Balanced Advantage Fund has been raised with an aim to take advantage of the lower valuations. Similarly, it has been lowered in the instances where Nifty 50 was at higher levels.
This indicates that the fund has been agile in making changes in its asset allocation according to situations. ^
In the last four years, the Kotak Balanced Advantage Fund has had an average allocation of 43% in equities. ^
2022 has been a volatile year for equities amid concerns of high inflation and growth seeing a slowdown globally. And while Indian equity markets have been resilient, volatility is likely to be a concern in 2023 as well, which could make asset allocation decisions paramount.
“Balanced Advantage Funds are kind of well-placed to handle these situations where a fund dynamically changes its equity and debt allocation based on market movements, valuations and sentiment,” said Harish Krishnan, who manages the Kotak Balanced Advantage Fund.
To know more about the Kotak Balanced Advantage Fund, click here.
^Data as on 30th Dec 2022. Source: ICRA, KMAMC Internal Research and https://www.kotakmf.com/Products/funds/hybrid-funds/Kotak-Balanced-Advantage-Fund/Dir-G. The index used is to represent the general market scenario. Average net Equity allocation is from the since inception date. Average net equity allocation as on date = Sum of Net Equity Allocation of the fund for a period/No of days Inception date of Kotak Balanced Advantage Fund is 3rdAug 2018
For a detailed portfolio and related disclosures for the scheme, please refer to our website https://www.kotakmf.com/Information/forms-and-downloads. The portfolio and its composition is subject to change, and the same position may or may not be sustained in future. The fund manager may make the changes as per different market conditions and in the best interest of the investors. To view the latest complete performance details of the Scheme, kindly refer to the factsheet on our website https://www.kotakmf.com/Information/forms-and-downloads.
Past performance may or may not be sustained in future. The article may include statements/opinions which contain words or phrases such as "will", "believe", "expect" and similar expressions or variations of such expressions, that are forward looking statements. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with the statements mentioned with respect to but not limited to exposure to market risks, general and exposure to market risks, general economic and political conditions in India and other countries globally, which have/ may have an impact on investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. This is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of it, in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this material are required to inform themselves about, and to observe, any such restrictions. Investors may consult their financial expert before making any investment decision.