The past two years have been a test. Markets climbed to record highs in late 2024, then fell sharply through early 2026—the Nifty 500 Total Return Index (TRI) losing over 20% from peak to trough—before partly recovering ground. For investors in balanced advantage funds (BAFs), navigating that entire episode was to happen almost automatically. When markets got expensive, the fund would pull back equity. When they fell and became cheap again, the fund would step in and buy. You wouldn’t have to do anything. That’s the pitch.
BAFs or dynamic asset allocation funds (DAAFs) are built to shift between equity and debt as conditions change—dialling up exposure when markets become attractive, pulling it back when valuations stretch. The manager, guided by a model, does the timing for you.
But the recent correction has tested whether that promise holds in practice. As the Nifty 500 Index fell, the question for every BAF investor became: is my fund actually buying this dip, or is it protecting itself from further losses? And if it did buy, did that translate into better returns when markets recovered?
That is a rise of 12.33 percentage points at the category level. Further, 30 of the 34 schemes increased their net equity exposure over this period. Only a handful moved in the other direction— Bank of India BAF and Samco DAAF were among those that reduced net equity exposure.
The funds that moved the most did so decisively. LIC MF BAF recorded the largest increase, rising by 30.72 percentage points. Union BAF was not far behind, at 29.89 percentage points. Biggest two funds in the category by assets—HDFC BAF and ICICI Prudential BAF—increased net allocations by 24.06 percentage points and 26.62 percentage points, respectively, while Baroda BNP Paribas BAF rose by 23.78 percentage points. By the end of August 2026, BAFs/DAAFs such as Bajaj Finserv and Quant were holding over 80% each of their portfolios in net equity, well above the category average.
What does a rising net equity allocation actually mean? Bhavana Acharya, Co-founder and fund manager at PrimeInvestor, draws a clear distinction between three numbers that often get confused. “The gross equity exposure is the total equity allocation for the fund, and includes open positions and derivatives. The hedged portion, which is through derivatives, effectively neutralises the equity exposure. The net equity exposure is the difference between the gross equity and the hedged portion—this exposure, therefore, shows how much of the fund’s equity allocation is vulnerable to market movements. Higher the hedging, less the risk as less of the portfolio is open to be affected by market movements,” she explains.
Chasing the dip
Since the Nifty 500 peaked in September 2024, balanced advantage funds have steadily increased their equity allocations.
The aggressive allocators: Funds in this group raised net equity exposure substantially through the period, often during or immediately after market weakness.
LIC MF and HDFC MF are the clearest examples given the scale of their increases. Baroda BNP Paribas Mutual Fund also belongs here, with net equity of around 80.5% in September 2026. Jitendra Sriram, Senior Fund Manager-Equity at Baroda BNP Paribas Mutual Fund, explains: “If you look at the market valuations, they are now below long-term median levels which is what is indicating a green on our model in terms of higher proportion of risk assets. To an extent this removes the emotional aspect of decision making and focuses purely on the numbers.” Crucially, the model gives no weight to momentum. “We do not budget any inputs from market determined factors such as momentum or volatility as these are more perception-based factors than being fundamental ones,” he adds.
The steady movers: Some funds barely shifted their allocations across the two-year period. Standard deviation analysis of the 24-month net equity allocation data from September 2024 to August 2026 identifies Parag Parikh DAAF (standard deviation: 0.78), Sundaram DAAF (2.43), Kotak BAF (2.84), Axis BAF (2.92) and Mirae Asset BAF (2.95) as the most stable movers— compared to a category where some funds swung far more sharply.
A stable allocation is not the same as a passive strategy. It can reflect deliberate design—a fund that believes consistent positioning, rather than tactical swings, better serves long-term investors. It can also reflect a model that responds slowly by construction. The key question is whether the stability is intentional and disclosed, and whether investors signed up knowing the fund would behave this way.
The tactical movers: At the other end, some funds changed their allocations dramatically from month to month. Samco DAAF tops this list with a standard deviation of 23.87 between September 2024 and August 2026. Motilal Oswal Balanced Advantage Fund (14.93) and ITI Balanced Advantage Fund (10.93) also show high variability. For these funds, a single month’s allocation figure is particularly misleading. Jiral Mehta, Senior manager-research at FundsIndia, makes the broader point: “Month-end snapshots can hide moves within the month. A rising net allocation could reflect new equity purchases, reduced hedging or a combination of the two.”
How did your BAF move?
Balanced advantage funds are built to shift between equity and debt as markets move. But some shift far more than others—and far more abruptly.
Who raised equity exposure the most?
Balanced advantage funds that saw biggest change in net equity exposure between September 2024 and August 2026.
Balanced advantage funds with highest net equity holding
Baroda BNP Paribas is explicit about its approach. Its asset allocation model relies on three valuation indicators: the price-to-earnings (P/E) ratio, which compares stock prices with company earnings; the price to-book (P/B) ratio, which measures stock prices against their book value; and dividend yield, which indicates dividend income relative to share prices. The fund considers these three metrics the only valid inputs for determining equity allocation. When valuations fall below long-term median levels, the model increases equity exposure, regardless of whether the broader mood is pessimistic. One consequence: the model is designed to look contrarian. “In a sense when valuations were reasonable it ignores the near-term noises of pessimism (buoyant crude oil, tariff noises, etc.) and focuses purely on data,” he says.
ICICI Prudential Balanced Advantage Fund follows a related but distinct approach. Shradha Thakker, Head of Strategic Product Development at ICICI Prudential AMC, says: “ICICI Prudential BAF follows a buy low, sell high approach. The fund follows in-house valuation model to manage equity levels. Considering the market is currently trading at reasonable valuation, the net equity levels are considerably high in line with the in-house model.” The fund moved from 37.18% net equity in September 2024 to 67.23% by September 2026. Historically, Thakker says, the fund increases equity exposure during market consolidation and trims it after sharp rallies. She also notes the fund had proactively lowered net equity levels before the September 2024 market correction—and had taken an aggressive equity position after the pandemic crash to capitalise on that opportunity.
Another fund, Edelweiss BAF takes a structurally different approach. Bhavesh Jain, President and co-head of factor investing at Edelweiss MF, describes a systematic framework built around market trends rather than valuations. “Our equity allocation is primarily driven by a systematic, trend based model that evaluates multiple market indicators. While the model anchors our allocation decisions, we retain some flexibility in implementation to manage portfolio risks during periods of heightened market or event-driven uncertainty,” he explains.
The distinction matters most when markets fall. A valuation-led model may increase equity allocation as prices drop, because falling prices make valuations more attractive. A trend-led model may reduce equity allocation in the same falling market, because the trend has turned downward. Jain is clear about which category Edelweiss falls into: “The model responds to changes in market trends rather than valuations. During the recent correction, signals moved towards the lower end of the equity range. As short term trends subsequently improved, the signal moved back towards median exposure.” During the correction, Edelweiss’s net equity exposure fell to 43% in March—among the lowest in the category. It then moved up to 67% in July before coming back down to 49% in September.
The returns report card
At the other end, Motilal Oswal BAF returned -6.16% over one year and -7.21% annualised over two years, worse than the Nifty 500 TRI on both counts. Samco Dynamic Asset Allocation Fund returned -6.08% over one year and -5.05% over two years. The returns for the BAF/DAAF category and Nifty 500 for one and two years are as of 19 October 2026.
But drawing a straight line between allocation changes and returns is too simple. ICICI Prudential BAF delivered the best two-year returns while running allocations ICICI Prudential MF’s Thakker describes as conservative relative to some peers. Parag Parikh—among the steadiest allocators in the dataset—also sits among the top performers.
What else is at work? Stock selection matters. A fund can have high net equity exposure but hold largely defensive, large-cap companies—and its performance through a correction will differ sharply from a fund of equal allocation concentrated in mid and small caps. The debt portfolio matters too. A fund with longer-duration bonds in a falling-rate environment gets a tailwind that pure allocation numbers cannot explain. Hedging costs affect returns.
Mohit Bagdi, head of investment research and founding partner at MIRA Money, says that evaluating BAFs on a short window distorts the picture. “BAFs should ideally be evaluated across complete market cycles rather than short periods. The effectiveness of the strategy should be assessed on risk adjusted outcomes and consistency across both rising and falling markets, rather than individual market calls.”
He suggests looking at downside and upside capture ratios together. “A fund capturing 70% of the upside and 50% of the downside is making a sensible trade. One capturing 70% of the upside and 65% of the downside is not,” he says. He also raises the investor behaviour dimension —one that return tables never capture. “If a smaller drawdown keeps a nervous investor invested through a crisis, the fund may deliver a better outcome, because the biggest damage in investing is often selling at the bottom.”
The net figure reflects the difference between gross equity and hedged equity, but it does not reveal what sits inside the equity portion. Two funds can have identical net equity of 65%, while one is concentrated in large-cap defensives and the other tilted towards mid and small-cap cyclicals. Their behaviour through a correction will be very different. The debt side matters equally: a fund with long-duration bonds responds differently to interest rate changes than one holding short-duration paper. A fund sitting on high cash has more firepower to deploy if markets fall further—a detail that a net equity percentage cannot show.
Acharya of PrimeInvestor makes the point directly. “A fund’s returns and risk depend on both the equity-debt mix and the hedged-unhedged balance within equity. A fund with a high net equity allocation may be more vulnerable to a correction than one with greater hedging, but stock selection and debt holdings can also alter outcomes.”
Month-end figures also conceal intra-month activity. A fund that raises equity exposure in the final week of the month records that higher number in its factsheet, but its actual exposure to that month’s market movements was lower for most of the period.
Kumar adds a further caution about comparing schemes with different stated ranges. “If you take the historical average of their net equity, and whether the fund manager has actually used the permitted allocation range—whatever that range is—then it is a true-to-label balanced advantage fund.” A fund that claims to be dynamic but has barely moved its allocation across two years of volatile markets is a different product from one that has actively shifted between 40% and 80% equity.
There is no single allocation level that makes a BAF good or bad. Kumar sets the bar: “When I look at allocating this category in a client’s portfolio, I look at whether the fund can actually participate in equity growth, whether it has a sensible approach for downside risk, and whether it keeps repeating this allocation process across market cycles.” On time frame, he is equally direct: “Someone should not come with a one-year time frame looking at whether a balanced advantage fund can give risk-adjusted returns. Three to five years—the fund should deliver appropriate risk-adjusted returns.”
Start with the stated model; it determines whether your fund buys when markets fall or waits until they recover. Then check consistency. “Did the fund do what it intended as per its investment philosophy across episodes, or did it behave differently or switch gears in between?” Bagdi asks. Downside protection, recovery speed and rolling returns across three to five years matter more than any point-to-point number. Finally, portfolio fit. “What is the fund trying to do? In what kind of market will it look bad? And will I still hold it when it does?” Bagdi asks. “Choosing a model you understand and can tolerate is not a compromise, but it is the most reliable way to capture the returns a fund can actually deliver.”
BAFs or dynamic asset allocation funds (DAAFs) are built to shift between equity and debt as conditions change—dialling up exposure when markets become attractive, pulling it back when valuations stretch. The manager, guided by a model, does the timing for you.
But the recent correction has tested whether that promise holds in practice. As the Nifty 500 Index fell, the question for every BAF investor became: is my fund actually buying this dip, or is it protecting itself from further losses? And if it did buy, did that translate into better returns when markets recovered?
The big shift
Whatever differences exist between individual funds, the direction of travel over the past two years has been consistent. BAFs, as a group, became meaningfully more aggressive. According to data available with PrimeInvestor and fund house factsheets, the average net equity allocation of 34 balanced advantage and dynamic asset allocation funds with a track record of at least two years rose from 52.65% in September 2024 to 64.98% in August 2026.That is a rise of 12.33 percentage points at the category level. Further, 30 of the 34 schemes increased their net equity exposure over this period. Only a handful moved in the other direction— Bank of India BAF and Samco DAAF were among those that reduced net equity exposure.
The funds that moved the most did so decisively. LIC MF BAF recorded the largest increase, rising by 30.72 percentage points. Union BAF was not far behind, at 29.89 percentage points. Biggest two funds in the category by assets—HDFC BAF and ICICI Prudential BAF—increased net allocations by 24.06 percentage points and 26.62 percentage points, respectively, while Baroda BNP Paribas BAF rose by 23.78 percentage points. By the end of August 2026, BAFs/DAAFs such as Bajaj Finserv and Quant were holding over 80% each of their portfolios in net equity, well above the category average.
What does a rising net equity allocation actually mean? Bhavana Acharya, Co-founder and fund manager at PrimeInvestor, draws a clear distinction between three numbers that often get confused. “The gross equity exposure is the total equity allocation for the fund, and includes open positions and derivatives. The hedged portion, which is through derivatives, effectively neutralises the equity exposure. The net equity exposure is the difference between the gross equity and the hedged portion—this exposure, therefore, shows how much of the fund’s equity allocation is vulnerable to market movements. Higher the hedging, less the risk as less of the portfolio is open to be affected by market movements,” she explains.
Chasing the dip
Since the Nifty 500 peaked in September 2024, balanced advantage funds have steadily increased their equity allocations.
Who moved, and how
Not all funds moved in the same direction, or with the same urgency. Looking at how individual schemes changed their allocations month by month reveals three distinct approaches. Ravi Kumar TV, Director at Gaining Ground Investment Services, frames the central test simply: “If equity markets have fallen, has the fund increased the allocation? If the equity markets were at the top, did the fund call the top?”The aggressive allocators: Funds in this group raised net equity exposure substantially through the period, often during or immediately after market weakness.
LIC MF and HDFC MF are the clearest examples given the scale of their increases. Baroda BNP Paribas Mutual Fund also belongs here, with net equity of around 80.5% in September 2026. Jitendra Sriram, Senior Fund Manager-Equity at Baroda BNP Paribas Mutual Fund, explains: “If you look at the market valuations, they are now below long-term median levels which is what is indicating a green on our model in terms of higher proportion of risk assets. To an extent this removes the emotional aspect of decision making and focuses purely on the numbers.” Crucially, the model gives no weight to momentum. “We do not budget any inputs from market determined factors such as momentum or volatility as these are more perception-based factors than being fundamental ones,” he adds.
The steady movers: Some funds barely shifted their allocations across the two-year period. Standard deviation analysis of the 24-month net equity allocation data from September 2024 to August 2026 identifies Parag Parikh DAAF (standard deviation: 0.78), Sundaram DAAF (2.43), Kotak BAF (2.84), Axis BAF (2.92) and Mirae Asset BAF (2.95) as the most stable movers— compared to a category where some funds swung far more sharply.
A stable allocation is not the same as a passive strategy. It can reflect deliberate design—a fund that believes consistent positioning, rather than tactical swings, better serves long-term investors. It can also reflect a model that responds slowly by construction. The key question is whether the stability is intentional and disclosed, and whether investors signed up knowing the fund would behave this way.
The tactical movers: At the other end, some funds changed their allocations dramatically from month to month. Samco DAAF tops this list with a standard deviation of 23.87 between September 2024 and August 2026. Motilal Oswal Balanced Advantage Fund (14.93) and ITI Balanced Advantage Fund (10.93) also show high variability. For these funds, a single month’s allocation figure is particularly misleading. Jiral Mehta, Senior manager-research at FundsIndia, makes the broader point: “Month-end snapshots can hide moves within the month. A rising net allocation could reflect new equity purchases, reduced hedging or a combination of the two.”
How did your BAF move?
Balanced advantage funds are built to shift between equity and debt as markets move. But some shift far more than others—and far more abruptly.
Who raised equity exposure the most?
Balanced advantage funds that saw biggest change in net equity exposure between September 2024 and August 2026.
Balanced advantage funds with highest net equity holding
Why funds differ
If all BAFs face the same market conditions, why do their allocations move so differently? The answer lies in what each fund’s model is actually measuring, and how strictly the fund house sticks to it.Baroda BNP Paribas is explicit about its approach. Its asset allocation model relies on three valuation indicators: the price-to-earnings (P/E) ratio, which compares stock prices with company earnings; the price to-book (P/B) ratio, which measures stock prices against their book value; and dividend yield, which indicates dividend income relative to share prices. The fund considers these three metrics the only valid inputs for determining equity allocation. When valuations fall below long-term median levels, the model increases equity exposure, regardless of whether the broader mood is pessimistic. One consequence: the model is designed to look contrarian. “In a sense when valuations were reasonable it ignores the near-term noises of pessimism (buoyant crude oil, tariff noises, etc.) and focuses purely on data,” he says.
ICICI Prudential Balanced Advantage Fund follows a related but distinct approach. Shradha Thakker, Head of Strategic Product Development at ICICI Prudential AMC, says: “ICICI Prudential BAF follows a buy low, sell high approach. The fund follows in-house valuation model to manage equity levels. Considering the market is currently trading at reasonable valuation, the net equity levels are considerably high in line with the in-house model.” The fund moved from 37.18% net equity in September 2024 to 67.23% by September 2026. Historically, Thakker says, the fund increases equity exposure during market consolidation and trims it after sharp rallies. She also notes the fund had proactively lowered net equity levels before the September 2024 market correction—and had taken an aggressive equity position after the pandemic crash to capitalise on that opportunity.
Another fund, Edelweiss BAF takes a structurally different approach. Bhavesh Jain, President and co-head of factor investing at Edelweiss MF, describes a systematic framework built around market trends rather than valuations. “Our equity allocation is primarily driven by a systematic, trend based model that evaluates multiple market indicators. While the model anchors our allocation decisions, we retain some flexibility in implementation to manage portfolio risks during periods of heightened market or event-driven uncertainty,” he explains.
The distinction matters most when markets fall. A valuation-led model may increase equity allocation as prices drop, because falling prices make valuations more attractive. A trend-led model may reduce equity allocation in the same falling market, because the trend has turned downward. Jain is clear about which category Edelweiss falls into: “The model responds to changes in market trends rather than valuations. During the recent correction, signals moved towards the lower end of the equity range. As short term trends subsequently improved, the signal moved back towards median exposure.” During the correction, Edelweiss’s net equity exposure fell to 43% in March—among the lowest in the category. It then moved up to 67% in July before coming back down to 49% in September.
The returns report card
Did it pay off?
The return data over the period shows a wide spread between the best and worst performers. ICICI Prudential BAF returned -0.37% over one year and 4.07% annualised over two years. Aditya Birla Sun Life BAF returned 1.77% over one year and 4.03% over two years. Parag Parikh DAAF returned 1.54% over one year and 3.57% over two years. The category average for one year was -3.16%, and 0.15% annualised over two years. For context, the Nifty 500 TRI returned -6.21% over one year and -1.72% annualised over two years. The best-performing BAFs significantly outperformed the broader market on both horizons.At the other end, Motilal Oswal BAF returned -6.16% over one year and -7.21% annualised over two years, worse than the Nifty 500 TRI on both counts. Samco Dynamic Asset Allocation Fund returned -6.08% over one year and -5.05% over two years. The returns for the BAF/DAAF category and Nifty 500 for one and two years are as of 19 October 2026.
But drawing a straight line between allocation changes and returns is too simple. ICICI Prudential BAF delivered the best two-year returns while running allocations ICICI Prudential MF’s Thakker describes as conservative relative to some peers. Parag Parikh—among the steadiest allocators in the dataset—also sits among the top performers.
What else is at work? Stock selection matters. A fund can have high net equity exposure but hold largely defensive, large-cap companies—and its performance through a correction will differ sharply from a fund of equal allocation concentrated in mid and small caps. The debt portfolio matters too. A fund with longer-duration bonds in a falling-rate environment gets a tailwind that pure allocation numbers cannot explain. Hedging costs affect returns.
Mohit Bagdi, head of investment research and founding partner at MIRA Money, says that evaluating BAFs on a short window distorts the picture. “BAFs should ideally be evaluated across complete market cycles rather than short periods. The effectiveness of the strategy should be assessed on risk adjusted outcomes and consistency across both rising and falling markets, rather than individual market calls.”
He suggests looking at downside and upside capture ratios together. “A fund capturing 70% of the upside and 50% of the downside is making a sensible trade. One capturing 70% of the upside and 65% of the downside is not,” he says. He also raises the investor behaviour dimension —one that return tables never capture. “If a smaller drawdown keeps a nervous investor invested through a crisis, the fund may deliver a better outcome, because the biggest damage in investing is often selling at the bottom.”
What the number hides
A fund’s net equity allocation at month-end is a useful starting point. It is not a complete account.The net figure reflects the difference between gross equity and hedged equity, but it does not reveal what sits inside the equity portion. Two funds can have identical net equity of 65%, while one is concentrated in large-cap defensives and the other tilted towards mid and small-cap cyclicals. Their behaviour through a correction will be very different. The debt side matters equally: a fund with long-duration bonds responds differently to interest rate changes than one holding short-duration paper. A fund sitting on high cash has more firepower to deploy if markets fall further—a detail that a net equity percentage cannot show.
Acharya of PrimeInvestor makes the point directly. “A fund’s returns and risk depend on both the equity-debt mix and the hedged-unhedged balance within equity. A fund with a high net equity allocation may be more vulnerable to a correction than one with greater hedging, but stock selection and debt holdings can also alter outcomes.”
Month-end figures also conceal intra-month activity. A fund that raises equity exposure in the final week of the month records that higher number in its factsheet, but its actual exposure to that month’s market movements was lower for most of the period.
Kumar adds a further caution about comparing schemes with different stated ranges. “If you take the historical average of their net equity, and whether the fund manager has actually used the permitted allocation range—whatever that range is—then it is a true-to-label balanced advantage fund.” A fund that claims to be dynamic but has barely moved its allocation across two years of volatile markets is a different product from one that has actively shifted between 40% and 80% equity.
How to judge yours
“If you are a new investor or someone who has been investing in FDs and is looking to explore equities then these funds can be a good option to begin with. With time, you can decide what asset allocation is best for your portfolio and allocate it accordingly,” says Mehta.There is no single allocation level that makes a BAF good or bad. Kumar sets the bar: “When I look at allocating this category in a client’s portfolio, I look at whether the fund can actually participate in equity growth, whether it has a sensible approach for downside risk, and whether it keeps repeating this allocation process across market cycles.” On time frame, he is equally direct: “Someone should not come with a one-year time frame looking at whether a balanced advantage fund can give risk-adjusted returns. Three to five years—the fund should deliver appropriate risk-adjusted returns.”
Start with the stated model; it determines whether your fund buys when markets fall or waits until they recover. Then check consistency. “Did the fund do what it intended as per its investment philosophy across episodes, or did it behave differently or switch gears in between?” Bagdi asks. Downside protection, recovery speed and rolling returns across three to five years matter more than any point-to-point number. Finally, portfolio fit. “What is the fund trying to do? In what kind of market will it look bad? And will I still hold it when it does?” Bagdi asks. “Choosing a model you understand and can tolerate is not a compromise, but it is the most reliable way to capture the returns a fund can actually deliver.”
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