According to AMFI data, the net AUM of Balanced Advantage Funds (BAFs) exceeded Rs 2.14 lakh crore as of September 30. Since July 2023, the BAFs have seen increased net inflows as investors seek consistent returns.

BAFs, which invest in a combination of equity and debt instruments, have also emerged as a popular option for new investors who do not want to take on too much risk when entering the mutual fund market. That being stated, here are five key considerations about BAFs that first-time investors should be aware of.

1. Hybrid Funds: Balanced Advantage Funds, also known as Dynamic Asset Allocation Funds, are hybrid funds that invest in a combination of equity and debt assets, allowing investors to efficiently traverse market turbulence. The asset management business handles the majority of asset allocation work in BAFs.

2. Advantage: Many investors tend to move some of their funds from pure equity schemes to BAFs in times of market volatility. Providing a distinct edge to these funds, especially during times of heightened volatility, BAFs enjoy the flexibility to manage asset allocation as per market cycles, according to experts. 

3. 5 top-performing BAFs in the Last Decade: BAFs have outperformed in terms of risk-adjusted returns. According to AMFI website data to October 16, 2023, the following are the five best-performing BAFs in the last ten years:

• HDFC Balanced Advantage Fund: In 10 years, the direct plan of this scheme has provided 17.66% annualized returns, while the regular plan has provided 16.75% annualized returns.

• ICICI Prudential Balanced Advantage Fund: In 10 years, the direct plan of this programme has provided 13.44% annualized returns, while the regular plan has provided 12.40% annualized returns.

• Nippon India Balanced Advantage Fund: In 10 years, the direct plan of this programme has provided 13.25% annualized returns, while the regular plan has provided 12.13% annualized returns.

• Edelweiss Balanced Advantage Fund: In 10 years, the direct plan of this scheme has generated 12.88% annualized returns, while the regular plan has generated 11.69% annualized returns.

• Aditya Birla Sun Life Balanced Advantage Fund: In 10 years, the direct plan of this scheme generated 12.67% annualised returns, whereas the regular plan generated 11.56% annualised returns.

4. Stable Returns: As previously said, BAFs have provided consistent returns, making them popular among investors looking at hybrid options. Many investors have switched to BAFs because of their consistent returns, especially since equity fund returns were flat in the first half of the year. According to experts, BAFs have the ability to provide investors with consistent returns.

5. Should you make an investment? According to experts, BAFs are ideal for first-time investors because asset allocation is controlled automatically. According to Nirav Karkera, Fisdom's head of research, now is an excellent moment to invest in BAFs to guarantee asset allocation methods are optimised for volatility and market cycles.