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  • Anuradha Mishra

A BAF with behavioural edge

Bajaj Finserv MF has launched a Balanced Advantage Fund. The New Fund Offer (NFO) will open for subscription on 24th November 2023 and close on 8th December 2023. The fund will follow a dynamic asset allocation model with a behavioral edge. What sets this fund apart from its peers is that it will apply inputs from behavioral sciences to its fundamental valuations based dynamic asset allocation model. We have presented the review of this NFO : sourced from " advisorKhoj.com"


Market cycles are inevitable

Equity as an asset class has wealth creation potential in the long term, but equity markets are subject to business cycles – there will be periods of rising and falling markets (see the growth of Nifty 50 TRI since 1st January 2000 in the chart below). In rising markets, valuations keep increasing till we reach a point where valuations become very expensive. When correction comes (circled in red), we see sell-off from and prices come down, till we get to a point where valuations start becoming attractive. At this point of time, the market bottoms out and market starts rising again. This cycle keeps repeating over and over again.




Source: National Stock Exchange, as on 31st October 2023. Disclaimer: Past performance may or may not be sustained in the future


You can take advantage of market cycles by buying when valuations are cheap and selling when valuations are expensive. This is the age old investment wisdom of “Buy low and sell high”. However, investors do exactly the opposite. This is due behavioural biases which investors have. The behavioural bias of greed and fear causes investors to buy high and sell low. In bull markets, investors think that the market will rise further and they keep buying even though prices are high. In bear markets, investors think that the market will fall further, so they sell in panic even though they should be buying because prices are low.


Why invest in Balanced Advantage Fund?

Balanced advantage funds solve the behavioural bias problem by taking emotions out of investing using a model based approach. Balanced advantage funds manage their asset allocation between debt and equity using a dynamic asset allocation model. There is low correlation of returns between debt and equity (see the chart below). By dynamically managing asset allocation between debt and equity, balanced advantage funds can reduce downside risk and bring stability to your portfolio.




Source: National Stock Exchange, Advisorkhoj Research. Period: 1st January 2011 to 31st October 2023. Equity is represented by Nifty 50 TRI and debt by Nifty 10 year benchmark G-Sec index. Disclaimer: Past performance may or may not be sustained in the future


Why behavioural factor cannot be ignored?

The stock market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions. The behavioural element in how the market behaves causes markets to rise even when valuations seem expensive or markets to fall even when valuations are attractive.



How will the Bajaj Finserv BAF model work?

The fund model will determine market’s intrinsic value & make behaviour based adjustments. It will change the asset allocation accordingly and rebalance the portfolio from time to time.



How will the BAF model work?


Core Asset Allocation

Estimate market’s intrinsic value: Forward EPS, growth premiums, and interest rate. This will give core allocation signal. Equity allocation will rise with fall in market valuation and vice versa.

Satellite Asset Allocation

Satellite allocation will be on the sentiments indicator using commodities, currency movements and yields. This will signal early warnings of market cycles, both bullish and bearish. The core and satellite allocation signals confirm and indicate market entry and exit points.

Behavioural Factor


Back-testing: How has the Bajaj Finserv BAF model performed versus Nifty?

Based on historical data Bajaj Finserv BAF outperformed the Nifty over 3 and 5 year investment tenures across different market conditions.


Source: Bajaj Finserv AMC, Period: From 3rd April 2006 to 31st October 2023. Disclaimer: The results are purely illustrative and do not indicate how the fund will perform in different market conditions or point to point periods in the future.

Back-testing: How has the Bajaj Finserv BAF model performed in corrections?

The BAF Model would have been able to limit downside risks to a considerable extent in the major market drawdowns (see the chart below).


Why invest in Bajaj Finserv Balanced Advantage Fund?

  • Take emotions out of investing and avoid pitfalls caused by behavioural biases


  • Navigate through market volatility – less volatility, more peace of mind


  • Optimize returns


  • Take a long term perspective towards investments


  • Adapt to changing market conditions


  • Tax efficiency

Who should invest in Bajaj Finserv Balanced Advantage Fund?

  • Investors who want capital appreciation and income over long investment tenures


  • Investors who do not want high volatility in their portfolios


  • Investors with minimum 3 to 5 years investment horizon


  • New investors or investors who do not have experience of volatile markets can invest in this scheme


  • You should consult your RM at Infinity Finserv Pvt Ltd if Bajaj Finserv Balanced Advantage Fund is suitable for your investment needs.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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