According to Varun Fatehpuria, Founder & CEO of Daulat Finvest Private Limited, the key feature of BAFs is flexibility. Unlike traditional hybrid funds that operate within fixed limits, these funds can move equity exposure anywhere between zero and 100%, depending on market valuations and fund manager strategy. This allows them to reduce equity when markets look expensive and increase it when valuations turn attractive.
Rushabh Desai, Founder of Rupee with Rushabh Investment Services explained that fund managers typically follow either pro-cyclical or counter-cyclical strategies. Pro-cyclical strategies increase equity exposure during rising markets, while counter-cyclical strategies focus on buying during corrections and reducing exposure near market peaks.
“Typically Balance Advantage Funds increase equity exposure during price correction, valuation correction and time correction,” Desai said.
Fatehpuria said many investors wrongly assume that Balanced Advantage Funds will not fall in a bear market. In reality, these funds can decline, but they are structured to limit the downside as their equity exposure is balanced with fixed income allocation.
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He added that in 2025, when broader markets were flat to negative, the average Balanced Advantage Fund still delivered around 5% positive returns.
Over a full market cycle of three to five years, these funds tend to generate moderate returns, with their primary objective during downturns being capital protection rather than high growth.
Over the long term, BAFs aim to deliver consistent returns while reducing volatility. Historical trends suggest that returns can vary widely depending on the strategy and market cycle, but on average, investors can expect moderate returns over a five- to six-year horizon.
Experts suggest that these funds are particularly suitable for investors who struggle with asset allocation decisions or prefer a more stable investment journey. Instead of timing the market themselves, investors can rely on fund managers to dynamically adjust exposure.
Overall, Balanced Advantage Funds can play a useful role in portfolios by offering a mix of growth and stability, especially in uncertain market conditions. However, they should not be seen as a substitute for pure equity funds, but rather as a complementary allocation for managing risk.
For full interview, watch accompanying video
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