Experts believe that Balance Advantage Funds have lost the charm that they formerly had. Though these schemes were designed to give you the best of both worlds, they have ended up doing the exact opposite. Neither do they give high returns in the bull market nor do they manage the downside well. Naturally, at a time when investors want safety, they will get out of schemes that do not live up to expectations.
These schemes witnessed an outflow of INR 463.85 crores in April, and the category has offered -1.80% returns in the last one year, which is way less than what debt fund categories offer, except for credit risk funds. As per MF advisors, these schemes had been marketed in ways that made them appear to be better than others in a volatile market.
When these schemes were introduced, many conservative investors stepped in for regular dividends. However, now there are no more dividends, and investors are taxed too. Eventually and naturally, investors are giving up. Later on, these schemes were pitched to be the best in terms of beating volatility, but now investors are looking for safety.
Because of job threats and liquidity issues, investors are now pulling out money from wherever they can. Some categories have become an easy target for the same. Amidst job losses and salary cuts, investors want their money to be safe. Thus, schemes that are not delivering as per their portfolios are being rejected, and the same happened in the case of BAF too.
There is a piece of news making the rounds that a lot of fund houses are meeting redemptions of the debt schemes by transferring the illiquid insecurities into BAFs through inter-scheme transfers. While there is no definite answer to this, the rumor is really strong and has even reached investors. Consequently, investors are now redeeming their investments in balanced advantage funds, because they do not want their schemes to be shut like the debt fund were.
With the Franklin episode fresh in the mind of many investors, they do not want to take a second chance with their investments.
Franklin Templeton MF shut down six of its debt schemes the previous month, citing the unfavorable liquidity scenario in the country as the reason behind this decision. This has greatly upset all investors since the money that they had parked for their short term needs has now been stuck for an indefinite period.