Do Balanced Funds Have A Place In Your Portfolio?
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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Director, Private Client Service at iFAST Pte Ltd
6 年Our clients have two balanced funds in their model portfolios. It certainly provided the cushion this past week
Vice President at Altstar Capital | Real Estate Investments
6 年Mihir Kanani
Principal - Agriculture, Agribusiness, and Pastoral, at TRE PONTE capital
6 年... and what exactly is a ‘balanced’ fund?
Financial Consultant
6 年In the current scenario my suggestion would be to go for balance advantage fund that too specifically of ICICI.. they are the master of this league. Wid asset allocation of 30 % in debt. And remaing 70 % bifurcated on fund manager call into airbitrage and equity... thereby giving a fair enuff return with equity taxation ... for the current scenario this is the best one as of now to go for...!
Auditor at Department of Defense
7 年Agreed that in any low-risk investment, you also have to balance lower losses in Bear Markets with lower gains in bull Markets.