Here’s all you need to know about balanced funds


Among the various types of investments in the market today, balanced funds or hybrid funds are characterised by their diversification among two major asset classes. They’re a type of mutual fund whereinhalf the investment is directed towards equity and related instruments while the other half is invested in debt instruments.Of this, the equity portionof balanced funds is inclined towards larger, dividend-paying companies, while the debtportion stabilises the risk of the equity investments.

Though they provide relatively lower returns, balanced mutual funds are beneficial for two reasons: creating an income stream and reducing market volatility. Thus, the diversification availed through a balancedmutual fund investment allows you to bridge the gap between saving vs. investing.

The primary purpose of these types of mutual funds is to offer you the best of both worlds. Besides, you should invest in balanced mutual funds for the following reasons:

  • Taxability

Under balanced mutual funds, you can shift between equity and debt funds without worrying about your tax liability.

  • Diversification

A balanced fund is an excellent way to bring about diversity in your investment portfolio. While it allows you to maximise your returns, it also acts as a safety net against volatility. That way, you can limit the risk on your investments.

  • Risk reduction

The risk attached to investing in equity and equity funds is known to all. As equity funds are subject to market risks, you might often worry about volatility-induced losses. A balanced fund acts as a saviour to reduce your risk and diversify your assets when there’s instability in the market.

  • Re-balancing
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It is difficult to predict the functioning of the financial markets. Balanced fundsshift their focus to debtassets when the market is down and towards equity assets when it bounces back.

Balanced funds are among the low-risk types of investmentthat provide safety, income, as well as capital appreciation. Hence, investing in balanced mutual funds is beneficial for the following people:

  • Retirees or risk-averse investors can use balanced fundstogrow their money as well as for supplemental income
  • It is suitable for investors with moderate risk appetite as they can switch between equity and debt based on the market performance
  • It is beneficial for investors who want to take additional risk to receive high returns irrespective of market fluctuations.

Balanced funds are low investment schemes to manage market risk. They’re among thetypes of investments that balance between equity and debt assetsfor optimum growth. Seek professional advice from a financial expert before making any decisions. Happy Investing!