Balanced advantage funds move in sync with markets-but not in the same way

A closer look at how India’s five largest BAFs have moved over the past two years, however, reveals a more nuanced picture: the broad direction is consistent, but the pace, range and conviction differ from fund to fund.

Between January 2024 and March 2026, the Nifty 50 ran through a full cycle—rallying about 19% from around 21,700 to over 25,800, correcting nearly 14% through February 2025, recovering through the rest of 2025, and showing fresh weakness in early 2026 amid the West Asia war.

Through this period, the five largest BAFs by assets under management (AUM)—HDFC Balanced Advantage Fund, ICICI Prudential BAF, SBI BAF, Edelweiss BAF and Kotak BAF—all adjusted equity exposure, but in different ways driven by their underlying models, ranging from valuation-based frameworks to momentum-driven approaches.

That divergence matters. BAFs vary widely in how quickly and aggressively they shift equity exposure, making it critical for investors to assess how consistently a fund has navigated cycles, not just its recent returns. Here’s how five funds positioned themselves through the past 18 months.

During the 2024 rally, the fund trimmed exposure steadily from around 57% to 49% by September. As the Nifty corrected, it raised allocation to about 56% by February 2025 and by 2026, it reached nearly 70%.

Gopal Agrawal, senior fund manager, HDFC Mutual Fund, said that before the geopolitical conflict, the macro environment was turning quite strong. Earnings appeared to have bottomed out and showing signs of recovery.

“In fact, Q3 earnings came in better than expectations, suggesting we were on a clear recovery path. The current situation is tricky purely because of geopolitical uncertainty. The underlying fundamentals remain intact, but events like war introduce unpredictability. You can’t model these factors—policy shifts or global reactions can change overnight,” Agrawal said.

“On a mark-to-market basis, net equity allocation had declined amid market correction, we increased it to align with our framework. We deployed capital during corrections to keep the allocation consistent with our framework” he added. The fund’s investment style blends value-oriented strategy with growth strategy.

During the 2024 rally, the fund cut exposure from around 41% to below 32% by July. As the market corrected, it rebuilt steadily to nearly 47% by February 2025. By March 2026, amid renewed weakness, allocation rose to around 62%, its highest in close to two-and-a-half years.

"The model determines our net equity allocation. Once that cornerstone is in place, fund management decisions on stock selection come into play,” said Chintan Haria, principal investment strategist at ICICI Prudential Mutual Fund.

"The fund has been able to utilise the sectoral rotations and also the market capitalization shifts through the market cycles over the years. The above has contributed in generation of superior risk adjusted returns," Haria added.

During the 2024 rally, allocation stayed between 63% and 70%. As the correction set in, the fund cut sharply to 44% by February 2025, then rebuilt quickly to 72% by March 2025. Through 2025, exposure ranged from about 44% to as high as 80%.

“In the recent recovery, momentum improved sharply and we moved allocation back to nearly 65-68% in April 2026,” said Bhavesh Jain, co-head of factor investing at Edelweiss Mutual Fund.

In March 2026, as the Nifty corrected sharply following the West Asia war, Edelweiss BAF cut its equity allocation from around 55% to 45%. This is consistent with its pro-cyclical approach – unlike most BAFs, which add equity as markets fall, Edelweiss reduces exposure when its momentum signal turns negative.

A momentum-driven model can work well in strongly trending markets but can struggle in range-bound conditions. Jain noted that the Nifty 50 has delivered near-flat returns over nearly two years, an unusual pattern for India that has made momentum strategies harder to execute.

“But India is typically a high-beta market. It tends to exhibit strong trends—either upward or downward, which works well for the momentum model,” Jain said.

Kotak BAF

Kotak Balanced Advantage Fund uses a three-factor model, trailing P/E for valuation, a three- to five-year return tracker for trend, and a price-to-VIX ratio as a sentiment indicator.

Through the 2024 rally, the fund held exposure in the low-to-mid 50s. During the correction, it increased allocation to about 58% by February 2025. When the Nifty corrected 11% in March 2026, equity exposure rose to 60.2% from 58.9% a month earlier.

“The model is currently indicating an equity allocation range of about 60–65%. The asset allocation approach is to focus on the recent range of model outputs to smooth noise and avoid reacting to short‑term fluctuations,” said Rohit Tandon, fund manager at Kotak Mutual Fund.

As the market declined, the fund raised allocation steadily—from around 32% in mid-2024 to over 42% by February 2025 and above 50% by March 2026. At the end of February 2026, net equity stood at 47.4%; as markets fell in March, it rose to 51.3%.

“We have been gradually increasing equity allocation. If we had done nothing, allocation would actually have fallen further due to market declines. We moved it up and actively deployed capital,” said Dinesh Balachandran, head of investments at SBI Mutual Fund.

“Having said that, we didn't see it as a once-in-a-decade opportunity. To take an aggressive call, you need strong conviction on macro factors — like oil prices sharply declining — which we did not want to bet on decisively,” he added.

Takeaways

How a BAF shifts asset allocation—and how far it moves—depends on its underlying model. Before investing, review the fund’s historical equity range and assess whether it aligns with your risk tolerance.

Focus on performance across market cycles, its ability to capture upside and contain volatility, rather than recent returns. Given their dynamic allocation, BAFs work best with at least a five-year horizon, where the probability of negative returns tends to fall.

They can form part of a core portfolio, but the right choice depends on matching the fund’s behaviour to your risk-reward expectations.

Jash Kriplani

Jash Kriplani is a seasoned journalist based in Mumbai with more than 15 years of experience across some of India’s leading publications, covering personal finance and investments. Over the years, he has developed a strong reputation for breaking down several complex financial concepts into clear, accessible insights for everyday investors, with a particular focus on helping individuals make informed decisions about their money.Jash has consistently written with a reader-first approach, blending storytelling with practical guidance. His work often reflects a deep understanding of investor behaviour, market cycles, and the evolving financial landscape in India, while staying grounded in data-driven insights and the real-world context.He is also a Certified Financial Planner (CFP), having earned the credential from the Financial Planning Standards Board Ltd, USA. This professional training complements his journalistic work, allowing him to bring a deeper perspective to his writing. Through his work, he aims to bridge the gap between financial theory and real-world application for Indian investors, empowering them to build sustainable, long-term wealth.In his free time, he likes to read and spend time with family.