Fund of Fortnight
This is our mutual fund recommendation. Every fortnight , we recommend one open-ended equity diversified fund that has the best potential of returns for the next one year considering its constituents remain the same.
Axis Balanced Advantage Fund - Direct Plan
Reason for recommendation
It is a clear fact that volatility in the equity market has increased with the dawn of 2022. There are various factors adding to such volatility. One is the news from developed economies about the era of easy money being done with. The second is that the interest rates are likely to increase sooner than later. And the final nail in the coffin is the stretched valuation of the equity market. In such a situation investors should ideally look at balanced advantage funds. These are a sub-category of hybrid mutual funds which follow dynamic asset allocation. Such funds invest in a mix of equity and fixed income instruments depending on certain models.
They enable the investor to diversify a portfolio, weather market volatility and limit losses when the equity market falls. Axis Balanced Advantage Fund, a remodelled avatar of Axis Dynamic Equity Fund, is one such fund from this category that would suit conservative investors at this point in time. The fund invests almost 50-55 per cent of its asset into either debt (32.7 per cent) or cash (19.4 per cent). Such an allocation will help the fund to help its investors contain the downside risk and reduce the overall volatility of the portfolio. On the debt front it is overweight on AAA-rated term deposits while it is underweight on AA-rated securities. Moreover, its duration is more tilted towards the short and medium term. This will help the fund during a rising interest rate scenario. On the equity front, it is overweight on financials, technology, construction and services but is underweight on FMCG, energy and healthcare sectors with highest allocation to any stock being not more than 6 per cent. Given this positioning, it is not surprising to see that fund was able to contain its losses during the March 2020 quarter to single digit against its peers’ 14.01 per cent. In terms of returns, the fund does not give superior returns and generates returns similar to the category average. Hence, it is ideal for those looking for safety rather than returns.
