Do Balanced Funds Have A Place In Your Portfolio?

By | November 2, 2017

Balanced funds, which requires minimum maintenance, are a great way for a Mutual Fund investor to ensure that you are proactively exposed to equity and debt within the same fund.

Stock markets have always been cyclical in nature. While Equity Funds have earned investors a lot of wealth over the long term, it may not be prudent to dive headfirst into the market with a basket chock-full of only equity Mutual Funds.

Asset allocation is an important step, and balanced funds are a great way for a Mutual Fund investor to ensure that you are proactively exposed to equity and debt within the same fund.

Growth And Safety

Equity-oriented hybrid funds usually invest at least 65% in equity related instruments and a maximum of 35% in debt and money market instruments. Because they have a portfolio that contains stocks and bonds, they offer diversification across asset classes and give you a blend of growth and safety.

The fund’s mandate allows the fund manager to switch between the two asset classes depending on the prevailing market sentiment, reducing the hassle for an investor.

Low Downside Risk

While balanced funds generally do not outperform diversified equity funds, they are fairly efficient in cushioning a fall during times of a market crash. Their debt holdings and the ability to increase allocation in debt during a bear run provide an inherent stability that typically has them fare better than their pure equity counterparts.

Keep in mind however that the mentioned debt component also lowers the prospects of return during a bull run, as they do not generate the kind of returns correspondingly offered by the equity component.

Favourable Tax Treatment

Equity-oriented hybrid funds are treated as equity funds. After one year, all gains from an equity-oriented balanced fund falls under the purview of long-term capital gains, which attracts no tax at the current time.

If the fund is held for less than 12 months, short-term capital gains tax is applicable at 15 percent.

In conclusion, balanced funds are potentially an excellent fit in any Mutual Fund portfolio – whether you are a first-time investor or an experienced hand in the world of mutual funds. They require minimum maintenance and you can use them as an important cog in your portfolio.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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