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Difference between ICICI Balanced Fund and Balanced Advantage Fund

HomeDifference between ICICI Balanced Fund and Balanced Advantage Fund

Balanced Fund – Invest in BOTH equities and debt in line with the pre-determined investment objective of the fund. In a hybrid fund, the investment objective is based on the belief that when one asset class is not performing well, money should be moved to some other asset class which is performing well. This will neutralize the negative effect of under-performance. Fund managers of balanced funds always maintain at least 65% of their investments in equities to take tax advantage.

There are 2 types of balanced funds – Debt-oriented hybrids and Equity-oriented hybrids. An equity oriented balanced fund is one in which equity exposure is 65-100% while the debt component is 0-35%. Debt-oriented funds allocate 5-25 % funds to equity and the rest to debt.

Read MoreEquity, Hybrid and Dynamic Mutual Funds

Balanced Advantage Fund – Combines stocks, debt and arbitrage into one portfolio. Balanced Advantage Funds are considered to be less risky as compared with plain vanilla balanced fund.

Asset Allocation

Types of Instrument

Normal Allocation

Equity & Equity Derivatives (Equity unhedged exposure limited to 80%)

65% to 100%

Debt instruments

0% to 35%

How Balanced Advantage Fund Decides Equity Exposure?

The fund adjusts its direct equity exposure based on whether overall market valuations are expensive or cheap (on the basis of price-to-book value). Thus, if the market’s price-to-book value ratio is low (based on historical values), the fund raises its direct stock exposure and relies less on arbitrage and vice versa.

balanced advantage fund 1

Always Outperform the Market – Balanced Advantage Fund has able to generate returns in every market scenario – Rising, Falling and Flat.

debt funds

Plan Option Available under Balanced Advantage Fund

The Fund is available under 2 options – Growth and Dividend

Growth Option – The fund will not declare any dividends under thi option. The income earned by the scheme will remain reinvested in the scheme and will be reflected in the Net Asset Value (NAV). This option is suitable for investors who are not looking for regular income but who have invested with the intention of capital appreciation.

Dividend Option – Suitable for Monthly Tax Free Income

Dividend Option can be availed either as monthly dividend and annual dividend with dividend payout and dividend reinvestment sub-options. All these options are separately listed.

This option is suitable for investors seeking monthly income through dividend declared by the fund. The distribution of dividend by AMC is decided out of the net surplus under this option.

Note – Dividends will be payable to those unit holders whose names appear in the register of unit holders on the date (Record Date).

However, dividend is subject to distributable surplus, therefore, keeping investors’ need in mind the fund also has money back option. MoneyBack allows investors to withdraw a fixed sum of money periodically (0.75% of the invested amount per month) depending on the option chosen by the investor.MONEY BACK OPTION

Minimum Investment of Rs 1 Lac is required to avail this option.

Basically this option will help in generating a cash flow of 9% p.a. of the capital invested i.e., Rs 9,000 in case of an investment of Rs. 1 lac in a year.

Features

[1] Better Return than Fixed Deposit or Debt Funds

In Balanced Advantage Fund, the presence of arbitrage provides unique flexibility to the scheme to hedge part of its portfolio against the market volatility and helps to earn comparatively higher return than liquid or debt funds.

Return in (%)

6 mth

1yr

3yr

5yr

ICICI Pru Balanced Advantage (G) 

17.2

13.6

20.3

15.8

ICICI Pru Income Opportunities (G) 

7.9

10.5

11.5

9.7

Sensex

17.7

12.1

14.7

11.1

[2] Tax Advantage

The other big advantage of Balanced Advantage Funds compared to liquid or debt funds is related to taxation. The fund is treated as an equity fund for tax purposes. Long-term capital gains from it attract no tax while short-term capital gains are taxed at 15%.

One question that is posed to us often is that if the fund’s equity allocation ranges from 30% to 80 %, how does it qualify for treatment as an equity fund? Whenever the fund’s allocation to equities goes below 65%, the balance allocation is made up by derivatives. So, if in bullish market conditions the fund’s equity allocation declines to 30%, the balance 35% (you need to have 65% allocation to equities to qualify for equity-like tax treatment) is invested in derivatives.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.