Our mind conjures up many images when we come across the term ‘balanced’. It is about the caution exercised by the tight-rope walker; it is about the safety and security achieved from a good decision and it is about peace of mind. In the context of investments, balanced mutual funds have all of the above.
Investments and savings are required to live life and it is normal human instinct to strike a balance in the investments decisions taken. A balanced mutual fund could be the key to the balance and parity that we seek to achieve through our investments.
What is a Balanced Mutual Fund?
A Balanced Mutual Fund is a combination of equity and debt investments which provide capital appreciation as well as income, without taking excessive risk.
In essence, balanced mutual funds hold a balance of debt and equity in their portfolio.
Should I invest in Balanced Mutual Funds?
The financial market has different kinds of investors with different motives and aspirations.
Balanced mutual fund can be the entry point for the conservative investors who want to invest in equities for the first time. Balanced funds can also be part of an aggressive investors’ portfolio, as this gives capital appreciation too.
Why should I choose Balanced Mutual Funds before other options?
The purpose of investment and the risk taking ability of the investor are the key to investment decisions taken. The USP of Balanced Mutual Funds is its stability. Investment in pure equities can expose you to more volatility of the market however, since the Balanced Mutual Fund is a mixed portfolio of debt and equity, it is better suited for the somewhat fickle nature of the market.
With 65% investment in equity with the balance in other fixed income instruments, balanced mutual funds are truly balanced. For those investors who are averse to regular monitoring of their investments, this fund is an ideal choice as it assures long-term growth with less volatility.
From the taxability point of view, since the equity allocation is 65% or more, the entire investment is exempted from the long-term capital gains tax. Even the debt portion is treated on an even keel with that of equity and hence no long-term capital gains tax needs to be paid.
And what is the downside of Balanced Mutual Fund?
Well every coin has two sides and so is the case of Balanced Mutual Fund also. The balanced mutual fund will raise less in a bullish market and their yields will not be commensurate with the rise in value of pure equity based funds. When interest rates rise both equity and debt instruments under-perform and this can lead to an average show by the balanced mutual funds.
However investors can take heart from the fact that due to the nature of balanced mutual funds, their investments are insulated to an extent and are relatively better off during dismal market conditions.
What are the market trends?
It is important to know that in the context of mutual funds past performance is never a guarantee for future prosperity. This applies to all balanced mutual funds as well, and investors have to invest in a particular balanced mutual fund scheme based only on merit.
A piece of good news is that balanced mutual funds have performed better than diversified equity funds over the last five years. Performance over 1 year, 3 years and 5 years have seen average percentage returns form balanced mutual funds leave other large-cap, mid-cap, multi-cap, mid-and small-cap funds far behind.
Parting Advice on Balanced Mutual Fund:
First look inward and ascertain investment needs. If pure equity is not exactly your cup of tea, or if you are looking for safe investment options with long term return, then go in for balanced mutual funds. As a thumb rule try to avoid funds which are less than three years and those which have an asset base of less than Rupees 3000 crore.
Balanced Mutual Funds may not fetch gold in the highest return category but it will ensure that you don’t hit the ground hard when the going gets tough.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://holisticinvestment.in/) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
Investments and savings are required to live life and it is normal human instinct to strike a balance in the investments decisions taken. A balanced mutual fund could be the key to the balance and parity that we seek to achieve through our investments.
What is a Balanced Mutual Fund?
A Balanced Mutual Fund is a combination of equity and debt investments which provide capital appreciation as well as income, without taking excessive risk.
In essence, balanced mutual funds hold a balance of debt and equity in their portfolio.
Should I invest in Balanced Mutual Funds?
The financial market has different kinds of investors with different motives and aspirations.
Balanced mutual fund can be the entry point for the conservative investors who want to invest in equities for the first time. Balanced funds can also be part of an aggressive investors’ portfolio, as this gives capital appreciation too.
Why should I choose Balanced Mutual Funds before other options?
The purpose of investment and the risk taking ability of the investor are the key to investment decisions taken. The USP of Balanced Mutual Funds is its stability. Investment in pure equities can expose you to more volatility of the market however, since the Balanced Mutual Fund is a mixed portfolio of debt and equity, it is better suited for the somewhat fickle nature of the market.
With 65% investment in equity with the balance in other fixed income instruments, balanced mutual funds are truly balanced. For those investors who are averse to regular monitoring of their investments, this fund is an ideal choice as it assures long-term growth with less volatility.
From the taxability point of view, since the equity allocation is 65% or more, the entire investment is exempted from the long-term capital gains tax. Even the debt portion is treated on an even keel with that of equity and hence no long-term capital gains tax needs to be paid.
And what is the downside of Balanced Mutual Fund?
Well every coin has two sides and so is the case of Balanced Mutual Fund also. The balanced mutual fund will raise less in a bullish market and their yields will not be commensurate with the rise in value of pure equity based funds. When interest rates rise both equity and debt instruments under-perform and this can lead to an average show by the balanced mutual funds.
However investors can take heart from the fact that due to the nature of balanced mutual funds, their investments are insulated to an extent and are relatively better off during dismal market conditions.
What are the market trends?
It is important to know that in the context of mutual funds past performance is never a guarantee for future prosperity. This applies to all balanced mutual funds as well, and investors have to invest in a particular balanced mutual fund scheme based only on merit.
A piece of good news is that balanced mutual funds have performed better than diversified equity funds over the last five years. Performance over 1 year, 3 years and 5 years have seen average percentage returns form balanced mutual funds leave other large-cap, mid-cap, multi-cap, mid-and small-cap funds far behind.
Parting Advice on Balanced Mutual Fund:
First look inward and ascertain investment needs. If pure equity is not exactly your cup of tea, or if you are looking for safe investment options with long term return, then go in for balanced mutual funds. As a thumb rule try to avoid funds which are less than three years and those which have an asset base of less than Rupees 3000 crore.
Balanced Mutual Funds may not fetch gold in the highest return category but it will ensure that you don’t hit the ground hard when the going gets tough.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://holisticinvestment.in/) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
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