Sundaram Balanced Advantage Fund – Should you invest?


Sundarm Mutual Fund house has launched a new fund “Sundaram Balanced Advantage Fund”. Should you invest? Let’s review this new NFO and see if its suitable for you. It opened on 14th Feb and closes on 28th Feb 2020. Later in a week’s time it will open for subscription again.

1. What does “Balanced Advantage” fund mean

This is another name for dynamic asset allocation. These funds are more of balanced or hybrid funds with additional advantage. They can manage proportion of equity and debt dynamically without any limit of how much proportion equity or debt should be.

When equity is expensive, fund will move more money to debt and vice versa. This concept is similar to doing market timing. Fund manager would take a call if valuation of shares is high or low and based on that, will manage the asset allocation.

Let’s take simple example for understanding concept. Say we invest Rs 100/- in this fund. As of today (17 Feb 2020), fund manager may feel based on his formula that market is at high. In such case he may put only Rs. 50 in equity and Rs. 50 in less risky debt instruments.

Six months down , lets say market goes down by 10-15 % and fund manager feels, valuation is low. He may increase equity portion to Rs 70/- and debt reduced to 30/- so he buys more shares at lower valuation.

One year down the line, if market go 30% up and if fund manager feels market is over valued, he may decided to reduce equity investment to only Rs 35/- and debt part to Rs 65/-.

2. Risks and returns

Collected money would be proportionately invested in equity and debt. Based on proportion, part of fund (invested in equity) would carry higher risk and part that is invested in debt is comparatively less risky. So overall as a whole, risk will be less than any fund which is investing entire money in equity.

Returns over long run may also be less than funds that are investing fully in equity. This is because part of fund will always be in debt which gets relatively lower returns compared to equity.

Conceptually these funds will be less volatile compared to pure equity funds. This category of fund generally suits for conservative investors who are ready to take moderately high risk.

3. Portfolio & Asset allocation

You can read detailed scheme information document here. If you refer Scheme Summary, you will find that fund has flexibility to invest up to 100% in equity or 100 % in debt at any given time. So mainly returns and risk would be dependent on fund manager’s call regarding market valuation. If call comes out correct, your money would be invested when valuation is low and moved to debt instruments when valuation is high.

4. Fund Manager

Fund Manager is a key factor in such funds. Krishnakumar S & Bharath S (Equity) & Dwijendra Srivastava (Fixed Income) will be fund managers for this scheme. Both are experienced fund managers and are managing multiple schemes at Sundaram Fund house.

4. USP of this fund ?

USP of fund is the concept. On paper idea is really good. Invest in equity when valuations are low and reduce equity exposure when valuation is high.

Among the metrics considered for deciding the debt-equity mix at any point of time will be the interest rate cycle, equity valuations (P/E, P/BV, Dividend Yield, Earnings yield, market cap to GDP ratio etc), medium to long term economic outlook etc. The objective of the equity strategy will be to build a portfolio of companies diversified across major industries, economic sectors and market capitalization that offer an acceptable risk reward balance.

Investment in debt securities will be guided by credit quality, liquidity, interest rates and their outlook. This proportion will depend on the fund manager’s views. In short, no specific formula is given by fund for the logic.

5. Who are peers of Sundaram Balanced Advantage Fund

There are long list of funds who have tried their hands at this good concept. You can see all of them here. Only few have really succeeded. ICICI Pru Balanced Advantage Fund is notable one with 1,3,5,7,10 year returns as 13.87, 9.31, 8.66, 12.28 and 12.33. Details of fund can be seen here.

It seems, though concept looks good on paper, timing market and allocating funds is not simple…even for fund managers.

6. Risk factors

1) First and foremost, you should understand underlying asset is equity and debt. So all the risks associated with equity as well as debt are applicable.

2) Being a dynamic asset allocation fund, I expect less volatility than complete equity fund.

3) These funds are challenging for fund managers. Now not only they need to select good stocks, they also need to manage proportion of how much equity vs debt.


Before you read conclusion – a disclaimer. Please note – I am not advising you on any financial decisions and you should do your own research and consult your financial advisor before making any financial decision. This article should be treated only as my personal view.

7. Conclusion

A wolf in sheep’s clothing

Concept of balanced advantage fund is deceptively complex . It appears very simple, nice and neat on paper but timing with valuation is a complex task. We financial planners know how difficult it is to guide our clients if they should book profit or stay invested when market runs up.

One good part which is in favour of this fund or category, is the flexibility to switch any proportion to debt. So in situations like market going insanely high, fund manager can safeguard money by switching to debt. This option is not there for a fund manager of say aggressive hybrid fund who may need to keep at least average 65 % of fund in equity as per fund mandate.

If you liked the concept of dynamic asset allocation, you can invest in this fund. Still better, one can invest in proven ICICI Pru Balanced Advantage Fund which has shown descent performance over a decade now.

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