What are Balanced Mutual Funds : Meaning, Review, Performance, Taxation

(Last Updated On: June 24, 2017)

Balanced Funds are the category of mutual fund which invests all its asset in a mix of equity and debt. The fund is also known as the Hybrid fund. The fund is designed to provide investors safety from volatility, give steady income, and modest capital appreciation. The fund generally follows the investment objective closely on investment types. In this post, we checkout the balanced funds meaning, review, performance, taxation and investment philosophy.

There are two categories of Balanced Fund:

Equity oriented Balanced Funds: This fund type invests 65-80% in equity and rest in debt securities. The equity portfolio of the fund is invested in multi-cap, large caps or mid cap stocks according to the investment objective of the fund.

Debt Oriented Balanced Funds: It keeps its majority of the holdings in Debt securities in the range of 65-80%. And the rest of equity and cash components. The fund is suitable for investors with a conservative approach.

Investment in Balanced Funds

Balanced funds have the benefit of both asset class and are most suited for 3-6 years investment horizon. The fund balances the gap between riskier equity segment and safer debt segment. Investment in balanced funds is most suitable for first-time investors and for those investors who want to have returns like equity fund but don’t have the risk appetite. It gives a superior risk-adjusted return to investors.

Advantages and Disadvantages of Balanced Mutual Funds

Advantages

  • Diversification: The fund offers its investor a diversified nature of investment across equity and debt securities. It helps the fund manager to manage risk much more efficiently.
  • Steady Income: Debt securities from the fund generates interest income and is not affected by volatility in the market. Due to its balanced asset base, the fund’s return is more stable than equity funds.
  • Low Risk: Due to the fund’s mix of debt and equity, the risk factors are greatly reduced and has less effect on volatility in the fund compared to equity fund.
READ  Balanced fund vs Equity Fund: Review, Differences, Comparison

Disadvantages

  • As the portfolio of balanced fund has 65-80% exposure in equity, it can effect the return of the fund during market downturn
  • Investors need to study the both equity and bond market performance to keep track of investment
  • Due to the rebalancing of the portfolio during bull and bear phase of the market, it can increase the expense ratio of the fund which can effect the return.

Balanced Funds Taxation

Balanced Funds are treated as equity funds if the funds have more than 65% exposure in equity.

Tax obligation for the investment in the equity-oriented balanced fund for the period of more than 1 year is NIL and for investment that is redeemed within 1 year of purchase, the gains are taxed short term capital gain tax of 15%.

Taxation for the debt-oriented balanced fund is done as per debt funds. Investment period of less than 3 yrs is treated as short term duration and gains are taxed at 10%. Investment period of more than 3 yrs,( long term duration) it taxed at 20%  including the benefit of indexation.

Review of Balanced Funds

There are many funds available to investors. Some of the top performing balanced funds are:

  • ICICI Pru Balanced Fund
  • HDFC Balanced Fund
  • Tata Balanced Fund
  • Principal Balanced Fund
  • UTI Balanced Fund
  • DSP-BlackRock Balanced Fund
  • Reliance-Regular Saving Fund-  Balanced option
  • L&T India Prudence Fund
  • Franklin India Balanced Fund
  • SBI Magnum Balanced Fund

We will compare few Balanced funds with returns of equity funds and Nifty 50. Check out our detailed review of Best Balanced Funds to invest in 2017.

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Conclusion

The Balanced fund is best suited for investors with low to medium risk appetite. The fund is suitable for investors to meet their medium to long-term financial goals and one should check the fund’s the past performance and its benchmark return before investment. In the Fund review, we can see that Balanced Funds may perform even better than Large cap equity funds and also NIFTY over the long term.

Checkout the list of Balanced Funds open for investment.

Pic Credits: Smartomorrows

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