Why is it important to find a balance in your investment portfolio?


The word “balance” enters our dictionary very early in life. When you’re young, it’s about finding a balance between your studies and your sports activities, when you enter your professional career, the emphasis is on the balance between spending and saving, and when you have ten years into your career, the balance is between your home and family obligations and your job. To achieve this balance, you do a number of things, from setting a study schedule during your school day to allocating phone/laptop-free hours so you can spend more time with your family.

However, have you ever stopped to think ki “balance kyun zaroori hai”?
The goal of finding a balance is to enjoy the best of both worlds without compromising. During your school days, it’s about having fun without compromising your studies and in your adult life, it’s about doing well professionally without compromising your family time. Just as you find balance in many aspects of your life, you should also strive to find balance in your investment portfolio.

The importance of finding balance in your investment portfolio

Creating an investment portfolio has two main purposes. The first is to grow your investments and the second is to protect your investments. Too much growth can sometimes come at the expense of security and too much security can limit portfolio growth. Therefore, it is necessary to balance portfolio growth with portfolio protection. From an investment perspective, this would mean balancing your equity and debt exposure. Generally, the equity component of your investment portfolio should provide long-term growth, while the debt component should provide downside protection. This means that if there is too much equity in your portfolio, you might be taking on more risk than you should and if there is too much debt in your portfolio, your investment portfolio might not be generating the sufficient returns needed to meet your financial goals. Thus, it becomes absolutely important to balance debt and equity exposure in your portfolio.

However, that is easier said than done. How do you decide what is too much equity or too much debt? More importantly, how do you know when to switch from equity exposure to debt and vice versa? This is where Balanced Advantage Funds (BAF) can really help.

Here are several ways Balanced Advantage Funds add value to your portfolio:

A balanced advantage fund is a type of mutual fund investment that falls under the hybrid mutual fund category. This means that these funds invest in a combination of stocks, debt securities and gold instruments to create a portfolio that can offer both growth and protection. The advantage of a balanced advantage fund lies in the way it manages the exposure between debt and equity instruments.

It generally allocates exposure between equity and bond investments based on certain investment criteria previously decided by the fund management team and depending on market conditions. When stock markets start to rise, BAF can invest a larger amount in stocks and take advantage of the growth opportunities they offer. On the other hand, when equities start to fall, it can dynamically shift a greater proportion of portfolio investment into debt securities. In this way, BAF can actively protect the portfolio from sudden movements in the stock market and limit losses.

As an investor in a BAF, you will be able to create a solid investment portfolio that can help you achieve your financial goals.
Some of the direct benefits include:

  • With dynamic asset allocation, these funds are able to quickly change stock allocations in response to changing market environments. As a result, your investment portfolio may grow in uptrend markets and remain protected in downtrend or downtrend markets.
  • You don’t need to try to time the market since allocations are made dynamically based on predetermined investment criteria.
  • It helps you overcome your behavioral biases when dealing with stock markets. Ultimately, this ensures that you don’t have to worry about sudden stock price movements.

While balancing toh zaroori hai, with BAF, doing the balancing act also becomes easy. Given the importance of your investment portfolio and the role it plays in helping you reach your financial goal, it’s time to explore balanced advantage funds.

An investor education initiative by Edelweiss Mutual Fund. All mutual fund investors must go through a unique KYC process. The investor should only deal with a registered mutual fund (RMF). For more information on KYC, RMF and how to file/redress any claims, click here

Investments in mutual funds are subject to market risk, read all plan documents carefully.

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