Opt for balanced advantage fund if you are worried about equity valuations

Make sure fund does not take too much mid- and small-cap exposure, or has poor quality debt papers

Balanced Advantage Funds (BAF), also known as Dynamic Asset Allocation (DAA) Funds, are once again in the limelight. Inflows into these schemes have averaged Rs 11,007.9 crore per month between August and October, according to data from the Association of Mutual Funds in India (Amfi). Fund houses are selling these schemes as a solution to investors who want equity exposure but are worried about steep equity market valuations.

How do they work?

BAFs invest in a mix of equity and debt. Allocation to these sub-asset classes is decided by a model based on valuation, momentum, macro-economic variables, or a mix