Prime Fund Recommendation: A Balanced Advantage Fund that has proven its mettle

Some of the funds with the highest assets under management (AUM) come from the balanced advantage fund category. SBI AMC had a blockbuster NFO in the category, garnering close to Rs 15,000 crore. This put it straightaway among the three largest funds in the category at inception.

We recently added the SBI Balanced Advantage Fund to our Prime Funds in our December 2025 quarter review. Let’s see how this late entrant ranks among established funds and who should consider investing in it.

What Are Balanced Advantage Funds?

Balanced advantage funds (also known as dynamic asset allocation funds), can shift their equity allocation anywhere between 0% and 100%, with the balance invested in debt or arbitrage (derivative) exposures. Arbitrage yields debt-like returns and is typically used to maintain the fund’s equity taxation status. Derivatives are used to hedge the equity exposure and neutralize equity market risk.

BAFs raise or lower equity exposure based on their reading of the markets, using indicators such as price-to-book ratio, price-to-earnings ratio, equity market momentum, and earnings yield-to-bond yield spreads. Each fund in the category has its own set of metrics, so allocations vary across funds. This is an important factor; the extent to which the fund hedges equity exposure, and when it raises or lowers it, directly impacts how well it contains downsides, how volatile it is, and how much it can return. This in turn has a bearing on how you should use the fund in your portfolio.

Most balanced advantage funds aim for equity taxation by keeping the combined equity and arbitrage allocation at or above 65% of assets. However, some newer funds target a 35%–65% equity-plus-arbitrage range. They take advantage of recent tax rules that tax long-term capital gains from such funds at 12.5% after a holding period of two years. By contrast, equity funds are taxed at 12.5% after one year (with gains up to Rs 1.25 lakh tax-exempt).

SBI Balanced Advantage – Fund management

SBI Balanced Advantage Fund (SBI BAF) has been managed by Dinesh Balachandran since its launch. He is the primary equity fund manager of the scheme. Anup Upadhyay joined as co-fund manager for equity in December 2024. For the debt allocation, Mansi Sajeja is the primary fund manager. She joined in December 2023. Rajeev Radhakrishnan is the co-fund manager for debt and has been with the fund since its inception.

The fund house decides asset allocation using a framework that looks at sentiment indicators such as retail flows and IPO activity,valuation indicators such as earnings yield, and bond yield and earnings drivers such as fiscal and monetary conditions.

Why invest

SBI BAF is more conservatively managed than most peers, with lower unhedged equity exposure. This makes it lower-volatile, therefore serving the purpose of having a debt-plus return option with tax efficiency. 

In 2025, the average open or unhedged equity allocation for SBI BAF stood at 52.18%, compared with 57.16% for the category. Unhedged equity exposure is that part of the portfolio that is not covered by derivatives and is therefore open to equity market movements. The fund is also active in changing its allocation. In 2025, equity exposure ranged from a low of 42.5% in January to a high of 58.6% in June. At the end of 2025, equity allocation stood at 53.18%.

On the portfolio side, the fund maintains a large-cap tilt in its equity allocation. As per the January 2026 portfolio, it is overweight on energy (9.8% versus 5.1% for the category) and underweight on financials (14.6% versus 19.3% for the category). It holds a large 94-stock portfolio, and the top allocations have seen few changes over the past year. The top five stocks as of January 2026 are Reliance Industries (5.3%), HDFC Bank (4.6%), Tata Steel (2.7%), Tech Mahindra (2.4%), and Axis Bank (2.1%).

On the debt side, the fund holds a well-diversified portfolio of over 200 securities. It keeps almost its entire allocation in the highest-quality bonds and papers. As per the latest portfolio, out of the 29% allocation to debt securities, only 1.3% was in bonds rated below AA+. About 26% was invested in sovereign or AAA-rated securities and cash equivalents.

Next, its performance puts it above category average. Average 1-year returns rolled over the past three years stand at 15.3%, slightly above the category average of 14.2%, even with a lower equity exposure. This is owing to the fund’s ability to keep volatility in check and limit downsides. SBI BAF’s minimum return at 2.4% is better than the category’s 0.89%. Its downside capture ratio is also by far better than the category. Breaking down SBI BAF’s performance across market cycles offers further insights into its ability to deliver. 

The fund contained losses better than both peers and the reference index during the two downturns since its inception.

The fund nearly matched the category’s average returns in the first bull phase, which began in mid-2022. In the more modest rally that started in March 2025, which saw higher volatility thereafter, the fund surpassed the category average. In both cases, it also beat the reference index, which had a higher average equity allocation than the fund.

With the Prime Funds list, SBI Balanced Advantage is housed under the Hybrid Equity – Low Risk category. The other balanced advantage fund in this set is ICICI Pru Balanced Advantage. Prime Funds also has HDFC Balanced Advantage, in the Hybrid – Moderate Risk set.

Among the three, HDFC Balanced Advantage Fund is the most aggressive. ICICI Prudential Balanced Advantage Fund, is positioned on the conservative side. HDFC scores high on returns, with an average return of over 20%, but its risk is also higher, with a standard deviation well above the category average. ICICI Prudential Balanced Advantage Fund scores best on risk metrics, with better minimum returns and lower standard deviation. 

SBI Balanced Advantage Fund sits between these two, being slightly more aggressive than the ICICI Pru fund, with higher average returns but comparatively higher volatility. 

Fund Expenses

The fund’s direct plan expense ratio of 0.72% is the same as the category average. The regular plan, at 1.54%, is lower than the category average of 1.97%. The expense ratio differential between the direct and regular plans is 0.82 percentage points, lower than the category average differential of 1.25%.

Fund Taxation

The fund maintains a gross equity allocation of 65% and is therefore taxed as an equity fund. Short-term capital gains (less than one year) are taxed at 20%. Long-term capital gains (one year or more) are taxed at 12.5%, with gains up to Rs 1.25 lakh exempt.

Risks and Suitability

SBI BAF strikes a balance between risk and return, with measured equity exposure aiding returns and limiting downsides.  For investors willing to take slightly higher risk, the fund can be a tax-efficient option for a three-year horizon, for those looking for higher returns without increasing equity risk In longer-term portfolios, the fund can be used to partially substitute debt. Those who find market volatility unsettling can also allocate a part of their long-term portfolio to a balanced advantage fund like this one. 

General disclosures & disclaimers