Balanced Advantage Fund category has delivered higher returns compared to other equity schemes in the past year. This is being attributed to dynamic asset allocation strategy which helps in altering the fund positioning. A balanced advantage fund combines stocks, debt and arbitrage into one portfolio, and are considered to be less risky as compared with plain vanilla balanced fund.

Tata Mutual Fund has recently launched Tata Balanced Advantage Fund and the fund house believes this fund will be a star performing fund in the category. In an exclusive interview to RupeeIQ, Rahul Singh – Chief Investment Officer Equity at Tata Mutual Fund, speaks more about the fund and the general market scenario.

Singh leads the fund management and equity research teams at TATA Mutual Fund. He brings with him over 23 years of investment experience. An alumnus of IIM Lucknow, Singh joined Tata Asset Management from Ampersand Capital Investment Advisors LLP where he was the Managing Partner. Prior to Ampersand Capital, he worked with Standard Chartered Securities and Citigroup Global Markets India. Excerpts:

We would like to start with discussing your outlook on Indian equity markets? Where do you think we are headed?

We think in the coming year equity market indices are likely to deliver high single digit to low double-digit kind of returns. While earnings growth is expected to pick up by almost 20-25%, it is less likely to reflect in market returns. We also foresee a little correction due to upcoming elections. Therefore, investors can expect moderate market returns.

Tata Balanced Advantage Fund is now open for subscription in a scenario wherein Indian equity markets still look a bit expensive. Trailing PE for Nifty 50 is still above 20. Please help us in understanding how this fund would help investors in the current market scenario.

This fund is suitable precisely for such scenarios when investors are not sure about equity returns. When they are wary of taking a call, dynamic asset allocation helps in generating stable returns. We have developed our own investment models that will determine the asset allocation basis economic situation, so investors can sit back and relax.

We understand that you have designed a special investment model called PE plus for this fund. How is it different from typical PE (Price to Earnings) based framework?

A typical PE based approach uses average of trailing + forward PE, to ensure that the equity component adequately reflects the forecasted earnings. However, this is not a fool-proof method as it does not capture the market dynamics. While our own PE plus model takes in to account three factors i.e. 1) Momentum 2) Volatility & 3) Global markets – tracking six market indices of developed and developing markets on weekly basis.  These three factors give us positive or negative signal basis which we can make variation of 10% and come up with a final percentage allocation to equity.

Using this strategy, the fund tries to avoid short term market volatility by either entering early or exiting early. Fund manager does not influence percentage of equity asset allocation, it is completely number driven; however, stock selection is at fund manager’s discretion.

What would be the debt strategy and what kind of rating profile we would see in this fund?

Fund would feature low interest rate risk and low credit rate risk. Aiming to generate regular income, this fund will allocate assets to highest rated corporate bonds, which are AAA (Triple A) rated, having residual maturity of 2-3 years. We don’t intend to buy government bonds or lower rated corporate bonds.

What sort of return expectation should the investors have from this fund?

Well, over a long-term period of 3-5 years the fund aspires to generate liquid fund plus 2-3% CAGR returns.

Given the elections this year, what sort of positioning Tata Balanced Advantage Fund is going to have?

We are looking at 40-50% of unhedged equity allocation to begin with. As the fund endeavours to maintain min 65% equity allocation it may have 25-35% equity arbitrage exposure and rest would be in debt or in cash.

Please provide our investors with key 5 reasons to invest in this fund.

By investing in this fund investors can benefit from,

  1. Use of trailing as well as forward PE to arrive at equity allocation
  2. Uses Technical as well as fundamental research
  3. High return potential Vs traditional PE Model (2-3% Extra)
  4. A scientific & number driven approach for investments
  5. Flexibility to change stance basis market situation for dodging volatility
Priyanka Bharati

Priyanka Bharati is a senior personal finance analyst with RupeeIQ. She can be reached on