What is the Difference between a Balanced Fund and a Balanced Advantage Fund?

Balanced funds invest in a combination of equities and debt units in a balanced ratio. The equity asset allocation gives you exposure to risky company stocks so that you experience capital appreciation and generate income. The debt component helps to balance out the risk factor. The fund can be equity-oriented or conservative in nature, depending upon the fund allocation in a particular asset.

Balanced Advantage Funds or Dynamic Asset Allocation Funds are also a part of the hybrid fund category. Under this, the asset allocation is dynamic, meaning it can shift from equity to debt or debt to equity, depending on the prevailing market conditions. The equity allocation oscillates between 40% to 60%, and the rest is in debt mutual funds and vice versa. The objective of Balanced Advantage Funds is to create wealth, as well as offer stability.

Returns on investment: Both funds have the capacity to generate better returns; however, Balanced Advantage Funds wins in terms of risk-adjusted returns. It is important to note the dynamic asset allocation fund does not offer uniform yields as the allocation changes as per the market trends. If you're specifically looking for long-term wealth creation, the Balanced Fund is an ideal choice.Risks: When it comes to risks, both funds have the somewhat same amount of risk exposure. Investors consider Balanced Funds as it helps in controlling risks better as against the Balanced Advantage Funds.Asset composition: Balanced Funds has a ratio between 40% to 60% for equity and debt mutual funds . In the case of Balanced Advantage Funds, 33% of asset allocation is for equities, and the rest 33% is in arbitrage funds, depending on the market conditions.Taxation: Both funds are taxed as per any equity mutual fund. If you're earning long term returns less than Rs. 1 lakh, you are not liable to pay taxes. If the scheme's capital gains are more than Rs. 1 lakh, you are liable to pay taxes at the rate of 10%.

If you see yourself as a moderate investor, you can opt for balanced advantage funds as it can offer better returns. On the other hand, balanced funds are suitable for investors looking for wealth generation from equities and help to reduce risks by investing in debt instruments.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.