The very design of the Balanced Advantage product makes it a default asset allocation solution for any investor

What is your outlook on Indian equities from a 3+ year investment horizon perspective?

Over the past 18 months, equity markets in India and globally have witnessed a near one-way rally on the back of a slew of positive news. With abundant liquidity pumped in by all central banks and yields collapsing, equities have become the choice of asset class for all investors. The outlook from a 3-year perspective remains, as we return to normalcy and living life in the post-covid era. But at the same time we are also witnessing pockets of overheating in the market and investors need to exercise caution. In order to generate decent returns from here on, investors need to be selective in stock selection with a major thrust on quality businesses which have the potential to deliver even during uncertain times.

What are global and domestic risk factors for equities in the near term?

Given the stage we are at; it is very important for investors to consider the risk-reward while allocating to equities. While the long term perspective remains exciting, the near term can witness bouts of volatility and moments of pullbacks after the sharp run-up we have witnessed. The key risk from a global standpoint remains the tapering program by the Fed. Unlike 2013, the Fed has been very transparent with its communication to the market about its intentions to withdraw the liquidity form the market. Therefore, the markets are more prepared this time around. But any dramatic change w.r.t the unwinding plan can have an adverse impact on the market. From a domestic angle, the re-emergence of the third wave remains a critical risk which can upset the ongoing rally. With the festive season setting in, the next few months remain crucial from an equities point of view.

For the benefit of retail investors, please explain how Dynamic Asset Allocation or Balanced Advantage Funds limits downside risks (drawdowns) in volatile markets?

The primary task of a Balanced Advantage Fund is to allocate between asset classes (equity and fixed income). The very design of the product makes it a default asset allocation solution for any investor. The aim of the product is to increase equity exposure when markets are attractive and to decrease equity exposure when markets are expensive. Usually markets tend to correct when they are expensive or overvalued and during such times, the Balanced Advantage Fund tends to have low equity exposure. This leads to lower volatility and drawdowns during market corrections and ensures a better investor experience.

Axis Balanced Advantage Fund follows the dynamic asset allocation strategy. For the benefit of retail investors and IFAs, please describe your dynamic asset allocation model?

Axis Balanced Advantage Fund has a dual objective of cushioning downside and also ensuring decent participating during market rallies. Our in-house proprietary methodology takes into account market valuation and trend in order to identify broader market trends. For e.g. if market valuations are low and the market trend is favourable, the model with tend to have a high equity exposure. The aim is to have higher equity exposure in favourable market environment and lower equity exposure during challenging market environment. The entire process is active in nature but at the same time we do not intend to focus on very short market movement.

What is your investment / stock selection strategy for the equity component of the fund?

Currently, the fund follows a large cap equity strategy with an emphasis on quality stocks with sustainable growth potential.

What is the fixed income strategy of the fund?

Currently, the Fixed income portfolio follows a barbell strategy which is a Mix of high quality corporate bonds and short duration credits. The target maturity profile is in the range of 2-4 years

What is your advice for investors looking to invest in Axis Balanced Advantage Fund? What should the risk appetite and minimum recommended investment tenure be for investors in Axis Dynamic Equity Fund?

Axis Balanced Advantage Fund is a product which can suit any investors core portfolio. The basic tenet of investing (asset allocation) is a default design which helps investors navigate across all market conditions. As the equity exposure is dynamically managed, risk management also comes inherently along with the product build. But at the end of the day it is an equity product and investors who have a time horizon of 5 years + should consider this as a part of their core mutual fund portfolio.

Mutual fund investments are subject to market risks, read all scheme-related documents carefully.