MF Query Board

Will the fund manager of a balanced advantage fund (BAF) modify the fund portfolio in response to market conditions? Will making a current investment in such a fund have any benefits? - Priyanka Kabra 

While some funds in the balanced advantage fund category manage their allocation dynamically, changing the equity allocation significantly up or down depending on the manager’s conviction in the equity markets, others in the category control their allocation in a narrow range. Over the previous three years, the median net equity allocation for funds in this category has varied from 39 per cent to 72 per cent as of June 2022. Such abrupt adjustments expose investors to the risk of a manager’s ability to correctly read the market and can affect his real asset allocation relative to his suggested allocation. Investors are spared the burden of evaluating the markets and choosing their own asset allocation. This is because asset allocation decisions are made at the sole discretion of the fund manager. However, depending on an investor’s risk tolerance and time horizon, the allocations the fund manager maintains in such funds might not be optimal for all investors. You may want to think about investing in pure-play equity and fixed income funds, which would take your risk tolerance and time horizon into consideration, in order to have more control over asset allocation in keeping with the advised asset allocation. Following are some the top performing BAFs in the markets:

What effects would a shift in the interest rate environment have on the economy, financial markets and rate-sensitive industries like real estate? - Amit Pillai

Real estate equity securities that are traded publicly resemble conventional stocks in many ways. Due to the wide variety of business models, various industries frequently perform differently. Consider the contrast between soaring technology companies and capital-intensive utilities. However, they have clear advantages in terms of institutional management, diversification and liquidity. REITs are the same, which provide these benefits:
■ Strong total-return potential
■ High current income potential
■ Liquidity
■ Transparency and corporate governance
■ Geographic and sector diversification
■ Value creation by company managements.



Rising rents are more important than ever in a climate with rising interest rates. In addition to the yearly rent increases, REITs are positioned to perhaps prosper in the impending rising interest rate environment. Real estate in the technology, e-commerce and retail sectors is all seeing long-term growth patterns that are boosting occupancy rates, rent growth and earnings, which in turn are raising dividend payments and property prices. Every time a person uses their phone to make an online purchase, they are utilising the real estate infrastructure, which includes everything from mobile phone towers to data centres to warehouses to storefronts. A diversified portfolio should include real estate as one of its asset classes. Real estate investors should make wise decisions given the climate of rising interest rates and the likelihood of higher inflation.

Should I choose the dividend or growth option when investing in an equity mutual fund through a systematic investment plan? - Seema Patki

Investors that want a consistent return on their investments use dividend options. Investors should be aware, though, that the payouts are not promises. Mutual funds repay your cash invested in the form of dividends, which are paid out of any investible surplus. The goal of investing is to build your investment corpus and therefore this return of funds is counterproductive. The investor consequently forfeits any future profits he might have made on the dividends received up until the end of his investment horizon. Additionally, from a taxation standpoint, investors are already taxed on their dividend income at their marginal tax rate. As a result, investors would miss out on the advantageous tax treatment for longterm capital gains that mutual funds offer. Hence, the growth option is better than the dividend payout option.