Between 2020 and the end of 2024, Indian equities saw one of their greatest gains over several years. Prices went up swiftly, and the Nifty 500 more than doubled. Mid- and small-cap stocks went up a lot. But history tells us that these types of times don’t last forever.
There is always a phase of moderation after times of very quick growth. It seems like moderation is starting to happen now. Prices are high at the start, and many seasoned market gurus have already stated that future returns are likely to be lower. Investors should think about ways to make the trip simpler instead of just trying to make more money when even stock managers urge caution. Balanced Advantage Funds, or BAFs, are a good fit for that segment.
What are funds with a balanced advantage?
Balanced Advantage Funds are a form of hybrid mutual fund that alters the mix of stocks and bonds based on how the market is doing. Unlike static hybrid funds, BAFs can change.
They frequently keep their overall equity exposure over 65% so that they may pay equity taxes. Derivatives are utilised to adjust net equity, which is the real lever. For example, a fund that exhibits 70% gross equity may only have 40% net equity exposure after hedges are put in place. Rest is in debt instruments, which are typically safe. This method helps BAFs lower their stock exposure when they think the market is too high and raise it when they think the market is too low.
How do they work in the real world?
This adaptability helps BAFs defend themselves while still being involved. In bullish phases, they join rallies, although they usually offer less than pure stock funds since part of the portfolio stays protective. They diminish net equity in markets that are unstable or expensive, which keeps investors from losing a lot of money. The debt sleeve earns steady money in markets that aren’t changing, which enables it to deliver tiny but good returns.
The approach generates a “compression effect,” which means that the highs are less spectacular and the lows are less deep.
A look back: The market cycles from 2020 to 2025
In the last five years, we’ve seen clearly how BAFs work in different cycles. The Nifty 500 dropped by around 38% between February and March 2020, when the Covid-19 crisis hit.
Multi-cap funds also went down, by roughly 35 to 37%. Balanced Advantage Funds, on the other hand, lost only 25 to 27%. They were able to limit their losses and bounce back faster after the markets calmed down because they had less net equity exposure and a defensive posture.
From April 2020 to October 2021, the Nifty 500 went up almost 110%. This was the start of the bull market and the conclusion of it. Multi-cap funds had returns that were in the same range, from 106% to 112%. On the other hand, BAFs only supplied about 60 to 65 per cent. They dropped behind when the market went up swiftly because they were more careful, but this was on purpose.
The picture altered again during the sideways phase, which lasted from March 2022 to September 2024. The Nifty 500 didn’t fluctuate much throughout this time, only 0 to 3%. Multi-cap funds stayed the same, flexi-cap funds only made 2 to 5%, while BAFs made 6 to 8%. The steady income from debt and the lesser risk from equity helped them, showing that they could make money even when things weren’t moving.
From 2020 to September 2025, multi-cap funds increased at a pace of around 27% per year, flexi-caps at about 22% to 23%, and BAFs at 17% to 18%. It’s clear that the trade-off is that you receive lower absolute returns than with aggressive stock funds, but you get them with smaller declines and less volatility.
Why these results matter
The information explains why BAFs can be useful for certain types of investors. They might not earn a lot of money in rallies, but they won’t let portfolios break apart when the market goes down. They take things that are too big and make them tiny. For instance, a 38% loss may turn into a 25% drop, while a flat three-year period could turn into a 6–8% growth.
For many investors, that stability is less about beating the market and more about getting habituated to the concept of staying engaged long enough for compounding to work.
How BAFs work with an investor’s portfolio
Balanced Advantage Funds don’t want to be the best at what they do. Their key strength is that they lower the risk and make returns more reliable. They make it easier for investors to stay committed by making big losses less stressful. They are especially useful for persons who don’t like volatility, are new to investing in stocks, or want to switch between stocks and bonds on a whim. BAFs make decisions for these sorts of investors, which saves them from making blunders in the market.
Conclusion
Balanced Advantage Funds are a great strategy for growing your investments. They make both the highs and the lows smaller, which might lead to outcomes that aren’t very big but are more consistent in the long run. This point has become even clearer in the last five years: they were behind in the rise from 2020 to 2021, but they helped to soften the falls during the 2020 crisis and kept capital safe during the sideways phase from 2022 to 2024.
For many investors, consistency isn’t just about the return rates; it’s also about how things function. Over time, the ability to stay engaged without selling in a panic when the market declines or chasing profits when it rises is what actually generates wealth.
Chakrivardhan Kuppala is co-founder and executive director at Prime Wealth Finserv Pvt. Ltd.