Can the LIC MF Balanced Advantage Fund Be an Advantage to Your Portfolio?
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Investors, usually, look at mutual fund investments for a balanced allocation between two major asset classes, equity and debt, to generate risk-adjusted returns, mitigate the effects of volatility and limit credit risk. Balanced Advantage funds are increasingly emerging as an alternative to pure equity and debt funds, as they provide an edge of equity alpha and try to maintain relatively lower volatility.
The balanced advantage fund is a category of mutual funds that dynamically shifts its asset allocation between equity and debt instruments, as well as money market instruments depending on prevailing market conditions. Balanced advantage fund offers protection from downside risk by reducing exposure to equities that are considered volatile in nature and increase exposure to debt.
The fund manager has the flexibility to manage the equity and debt exposure in the portfolio by following the set asset allocation model. Investors may face a dilemma about how to allocate their investment between equity and debt, balanced advantage funds offers you the benefit to diversify your investment with adequate asset allocation.
LIC Mutual Fund has launched LIC MF Balanced Advantage Fund, an open-ended Dynamic Asset Allocation Fund.
On the launch this fund Mr Yogesh Patil Head - Equity at LIC Mutual Fund said, "The inverse correlation between equity and interest rates is core to our asset allocation model. Forward price to earnings multiple band arrived at using interest rates and earnings yield help to increase allocation to equity when it is attractive, and reduce when it has run up."
"The scheme can take advantage of the sharpest moves in stock markets that may be short-lived. So a flash crash can be used to deploy more money in equity. Also, equity can be sold in a flash up-move."
Table 1: Details of LIC MF Balanced Advantage Fund
Type |
An open ended Dynamic Asset Allocation Fund |
Category |
Balanced Advantage Fund |
Investment Objective |
The investment objective of the scheme is to provide capital appreciation/ income to the investors from a dynamic mix of equity, debt and money market instruments. The Scheme seeks to reduce the volatility by diversifying the assets across equity, debt and money market instruments. However, there is no assurance or guarantee that the investment objective of the scheme will be realized. |
Min. Investment |
Rs 5,000 and in multiples of Re 1/-thereafter with no upper limit. Additional Purchase Rs 500/- and in multiples of Re 1/- thereafter. |
Face Value |
Rs 10/- per unit |
SIP/STP/SWP |
Available |
|
Plans |
|
Options |
- Growth
- Income Distribution cum capital withdrawal (IDCW)
|
Entry Load |
Not Applicable |
Exit Load |
- 12% of the units allotted shall be redeemed or switched out without any exit load, on or before completion of 12 months from the date of allotment of units.
- 1% on remaining units if redeemed or switched out on or before completion of 12 months from the date of allotment of units.
- Nil, if redeemed or switched out after completion of 12 months from the date of allotment of units.
|
Fund Manager |
Mr Yogesh Patil
Mr Rahul Singh |
Benchmark Index |
LIC MF Hybrid Composite 50 : 50 Index |
Issue Opens: |
October 20, 2021 |
Issue Closes: |
November 03, 2021 |
(Source: Scheme Information Document)
The investment strategy for LIC MF Balanced Advantage Fund will be as follows:
LIC MF Balanced Advantage Fund endeavours to provide long term capital appreciation/income from a mix of equity and debt investments. The scheme will dynamically allocate its assets between equity, debt, and money market securities. Different asset classes exhibit different risk-return profile and have relatively low correlation to each other as compared to investments within the same asset class.
The scheme will allocate its asset to equity and fixed income asset classes based on the percentage allocation suggested by internal model developed by LIC Mutual Fund. The asset allocation will be determined between equity and debt depending on prevailing market and economic conditions.
The LIC mutual fund internal model is designed to reduce the human bias and manage asset allocation across equity and debt in different market phases. The key attributes of the model are as follows:
-
The model takes into account the historical trend and Forward estimates of PE, Earnings yield P/B, and Mcap to GDP. The range is decided based on the last more than 10 year historical data points.
-
The PE range is decided on the base of the prevailing interest rate and the earnings yield. This way, we try to capture the effect on interest rate on the PE.
-
The equity allocation across range is decided based on the linear progression model between the derived range of the valuation inputs.
The fund manager will actively manage allocation of the LIC Balanced MF Advantage fund and follow an investment strategy based on the mutual fund house's internal model for asset allocation.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for LIC MF Balanced Advantage Fund
Instruments |
Indicative Allocation (% of assets) |
Risk Profile |
Minimum |
Maximum |
High/Medium/Low |
Equities and equity related instrument** |
0 |
100 |
High |
Debt & Money Market Instruments (including Triparty Repo) |
0 |
100 |
Low to Medium |
Units issued by REITs & InvITs |
0 |
10 |
Medium to High |
(Source: Scheme Information Document)
Who will manage LIC MF Balanced Advantage Fund?
Mr Yogesh Patil for equity and Mr Rahul Singh for debt are the dedicated fund managers for this scheme.
Mr Yogesh Patil is a Fund Manager at LIC Mutual Fund Asset Management Ltd. He has fund management experience of 10 years. His qualifications include MBA (Finance) - Symbiosis Institute of Business Management, Pune; and B.com - Govt. College BHEL, Bhopal. Prior to this, he has worked as Fund Manager (Equity) - LIC Mutual Fund Asset Management Ltd., Senior Fund Manager (Equity) - Canara Robeco Mutual Fund and Research Analyst - Sahara Mutual Fund.
The other schemes Mr Patil manages are LIC MF Equity Hybrid Fund (Equity Portion), LIC MF Flexi Cap Fund, LIC MF Large Cap Fund, LIC MF Large & Midcap Fund, LIC MF Tax Plan, LIC MF Unit Linked Insurance Scheme (Equity Portion), and LIC MF Infrastructure Fund.
Mr Rahul Singh is Fund Manager at LIC Mutual Fund, and he has over six years' experience in Fund Management. His qualifications are BSc. Economics Hons.; PGDM (MBA) - IIM Ahmedabad. Prior to this, he was associated with BOI AXA Investment Managers as Dealer - Fixed Income, and ING Investment Management - Credit Analyst.
The other schemes Mr Singh manages are LIC MF Liquid Fund, LIC MF Savings Fund, LIC MF Overnight Fund, and LIC MF Ultra Short Term Fund.
Fund Outlook - LIC MF Balanced Advantage Fund
LIC MF Balanced Advantage Fund is a type of hybrid fund that aims to follow dynamic asset allocation strategy using fundamental parameters. The scheme may reduce the impact of losses in adverse market conditions on predefined parameters and by diversifying into various asset classes.
The scheme will follow an internal fund house based model, which indicates protection to the portfolio against downside risk. It provides optimum asset allocation through the Fundamental Based Mathematical Model (FMM). The fund endeavours to keep its gross equity exposure greater than or equal to 65% so that investors can avail of the equity taxation benefit.
The scheme aims to generate near equity returns with relatively lower volatility and the fund house based internal model aims to generate risk-adjusted returns in various market phases.
However, do note that this scheme will allocate major part of its assets to equity and debt securities, equities are volatile in nature and as per the market conditions the scheme may invest in debt, which makes the scheme prone to credit risk, interest rate risk, etc. This makes the scheme a risky investment proposition.
Thus, the scheme is suitable for investors with a high-risk appetite seeking dynamic asset allocation in equity and debt for a long investment horizon. It is important to ensure that your investment objective aligns with the fund.
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Warm Regards,
Mitali Dhoke
Jr. Research Analyst
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