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PGIM India Balanced Advantage Fund: Aiming to Benefit from Automatic Balance
Jan 21, 2021

In the past year, India's equity markets have experienced extreme volatility. The year 2021 has started on a good note, giving way to some optimism about a faster economic recovery. In addition, vaccine disbursement has been made to stop the spread of COVID-19 and therefore, benchmark indices S&P BSE Sensex and Nifty 50 are scaling new heights every day.

However, if you look at the current scenario, the Indian equity market is witnessing a two-pronged move with caution ahead of the Union Budget 2021 and the concerns regarding new strain of coronavirus in different countries. Although the bullish trend may continue, the expensive market valuations could be a concern.

If you plan to invest in equity mutual funds buoyed by the recent rally but have a conservative approach, you should consider balanced advantage funds.

You see, the equity markets go through a volatile phase now and then. At such times, a dynamic asset allocation strategy of a fund could help you tide over volatility. Also, interest rates are at a multi-year low and a balanced advantage fund could be a suitable investment option with better return compared to fixed deposits.

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As per SEBI mandates, Balanced Advantage Funds, also referred to as Dynamic Asset Allocation funds, should have "investment in equity/debt that is managed dynamically". These funds are free to manage their exposure to equity and debt instruments without any limit on exposure in a particular asset.

Looking at the optimism in the market, PGIM India Mutual Fund a wholly-owned business of PGIM, who has managed 20 open-ended funds and have a presence across 27 cities in the country launched PGIM India Balanced Advantage Fund.

This is an open-ended dynamic asset allocation fund aiming to provide capital appreciation and income distribution to the investors by dynamically managing the asset allocation between equity and fixed income, using equity derivatives strategies, arbitrage opportunities, and pure equity investments. The scheme seeks to reduce the volatility by diversifying the assets across equity and fixed income.

However, there can be no assurance that the investment objective of the Scheme will be achieved and the Scheme does not guarantee/ indicate any returns.



While speaking on the launch, Mr Ajit Menon CEO, PGIM India Mutual Fund said, "The Balanced Advantage Fund category is an excellent investment solution for investors. A model-based approach helps in automatically rebalancing investments between equity and fixed income in a tax-efficient manner without the investor having to keep track themselves."

Table1: Details of PGIM India Balanced Advantage Fund
Type An open-ended dynamic asset allocation fund Category Balanced Advantage Fund
Investment Objective To provide capital appreciation and income distribution to the investors by dynamically managing the asset allocation between equity and fixed income using equity derivatives strategies, arbitrage opportunities and pure equity investments. The scheme seeks to reduce the volatility by diversifying the assets across equity and fixed income.
However, there can be no assurance that the investment objective of the Scheme will be achieved. The Scheme does not guarantee/ indicate any returns.
Min. Investment Rs 5,000 and in multiples of Re 1/-thereafter with no upper limit
Additional Purchase Rs 1000/- and in multiples of Re 1/- thereafter
Face Value Rs 10/- per unit
SIP Investment Minimum 5 instalments of Rs.1,000/- each and in multiples of Rs.1/- thereafter for Monthly and Quarterly Sip. Top up amount for Monthly and Quarterly SIP is Rs.100/- and in multiples of Re. 1/-
Plans
  • Direct
  • Regular
Options
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load
  • 10% of the units allotted may be redeemed/switched-out to debt schemes without any exit load within 90 days from the date of allotment.
  • Any redemptions/switch-outs in excess of the above-mentioned limit would be subject to an exit load of 0.50%, if the units are redeemed/switched-out to debt schemes within 90 days from the date of allotment of units.
  • Nil - If the units are redeemed/ switched-out after 90 days from the date of allotment of units.
  • No exit load will be charged for switches
Fund Manager - Mr Aniruddha Naha
- Mr Kumaresh Ramakrishnan
- Mr Anandha Padmanabhan
Benchmark Index CRISIL Hybrid 50+50 Moderate Index
Issue Opens: January 15, 2021 Issue Closes: January 29, 2021
(Source: Scheme Information Document)

What will be the Investment Strategy of PGIM India Balanced Advantage Fund?

PGIM India Balanced Advantage Fund will endeavor to deliver reasonable downside protection and lower volatility by dynamically allocating assets between equity and fixed income. However, to benefit from the favourable tax treatment accorded to equity mutual funds, the scheme will invest minimum 65% of its assets in equity (including arbitrage). The fund will maintain directional equity exposure of at least 30% at all times.

The stocks for the investment universe will be selected by applying quality filters as mentioned below:

  • Operating Cash Flow positive for 7 out of 10 years
  • Demonstrated Corporate Governance
  • Debt to Equity ratio < 3

The fund will allocate assets across equity and debt based on the percentage allocation suggested by the Dynamic Advantage Asset Allocation Facility (DAAAF) model to facilitate the investor to buy low and sell high in the equity markets for long-term wealth creation.

The model helps the fund determine whether the equity market is undervalued, overvalued, or reasonably priced based on divergence of current P/E (average of last 20 days) of Nifty 50 Index with respect to its long-term average (15 year rolling P/E). Depending on the recommendation of the model the fund will execute the following strategies:

  • Enter: When the equity market is undervalued, i.e. Current P/E is significantly lower; it switches or increases allocation from the debt allocation to the equity allocation.
  • Exit: When the equity market is overvalued, i.e. Current P/E is significantly higher; it switches or decreases allocation from the equity allocation to the debt allocation.
  • Re-enter: When valuations are reasonable vis-a-vis the historical averages, it switches/increases allocation to the equity allocation from the debt allocation.

As markets mature over periods, PGIM India Mutual Fund believes that this feature will keep the model always relevant.

Under normal circumstance, the fund's asset allocation pattern will be as under:

Table 2: Asset Allocation of PGIM India Balanced Advantage Fund
Instruments Indicative Allocation
(% of Net Assets)
Risk Profile
High/Medium/Low
Minimum Maximum
Equity and Equity related instruments** 65 100 Medium to High
Debt and Money Market Instruments 0 35 Low to Medium

**Investments in derivative instruments shall be as permitted vide SEBI Circular no. DNPD/Cir 29/2005 dated September 14, 2005 and SEBI Circular No. DNPD/Cir-30/ 2006 dated January 20, 2006, SEBI circular No. SEBI/DNPD/Cir- 31/2006 dated September 22, 2006 and SEBI Circular No. Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010, and such other circulars as may be issued from time to time.

(Source: Scheme Information Document)

Who will manage PGIM India Balanced Advantage Fund?

PGIM India Balanced Advantage Fund will be managed by Mr Aniruddha Naha for equity investment, Mr Kumaresh Ramakrishnan for debt and money market securities and Mr Anandha Padmanabhan for overseas investments.

Mr Aniruddha Naha is a Senior Fund Manager - Equity at PGIM India Asset Management Pvt. Ltd. Mr Naha has successfully completed his Masters in Finance & Control and has over 18 years ofindustry experience in the equity and debt market.

Mr Naha is the fund manager for PGIM India Diversified Equity Fund and PGIM India Midcap Opportunities Fund.

Mr Kumaresh Ramakrishnan is the CIO-Fixed Income of PGIM India Asset Management Pvt. Ltd. He is a Bachelor of Engineering (BE) from Bombay University (K J Somaiya College of Engineering) and an MBA in Finance from Bombay University (Narsee Monjee Institute of Management Studies).

Prior to this, Mr Ramakrishnan was CIO Fixed Income of DHFL Pramerica Asset Managers Ltd., Head Fixed Income at Deutsche Asset Management India Ltd. and has over 19 years of experience in the Indian Fixed Income market.

Mr Anandha Padmanabhan is an Equity Analyst and Fund Manager, PGIM India Asset Management Pvt. Ltd. He has been appointed as Dedicated Fund Manager for Overseas investments w.e.f January 10, 2020.

He has over 10 years of experience in the Equity Market and Mr Padmanabhan is an ACA, CFA, and FRM.

Fund Outlook - PGIM India Balanced Advantage Fund

Even though Investor sentiments have improved in recent months, some are still hesitant towards a conventional approach. Plus, the young investors with years ahead of their financial goal horizons are looking for investment options that offer downside protection without compromising on the return potential.

Balanced Advantage Funds aims to deliver long-term returns closer to equity funds but with significantly lower volatility. It combines the features of potential capital appreciation, capital preservation, and volatility control.

The Dynamic Asset allocation Funds aims to generate capital gains primarily through dynamic management of equity allocation as per varying market conditions and to provide stability and regular income through exposure to fixed income instruments.

While the allocation between equity and debt at any given time will play an important role in determining the performance of the fund, a lot will depend on the fund manager's ability to pick quality securities under equity and debt segment and its respective weightage in the portfolio.

Balanced advantage funds have the ability to deliver better risk-adjusted returns provided the fund manager efficiently shifts between equity and debt and maintains a well-diversified portfolio of securities. PGIM India Balanced Advantage Fund is suitable for investors with moderately high-risk appetite seeking for long-term wealth creation.

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Happy Investing!

Author: Mitali Dhoke

This article first appeared on PersonalFN here.

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

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