It is no longer a secret that mutual funds have become a staple in an investor’s portfolio. With more and more people investing in mutual fund schemes every year, it is important for them to understand the benefits of each type of fund. One popular fund type in India is the balanced mutual fund. A balanced fund is considered one of the safest investments and it serves as a good alternative to bank fixed deposits.
This article will go over everything you need to know about this popular fund type as well as why you should probably invest in it.
What is a balanced mutual fund?
Mutual funds can be a great way to invest your money. One of the most popular mutual fund schemes in India is the balanced fund. This type of fund has become such a popular choice for investors because it offers a mix of equity and debt instrument investments.
Balanced funds are financial products that invest money in a defined ratio of debt instruments and equity sections. These mutual funds, often known as hybrid mutual funds, allow investors to easily diversify their investment portfolios. They provide the finest risk-reward balance as well as assist to optimize returns on investment as they keep an equilibrium between debt instruments and equity sectors.
One example of a balanced mutual fund would be HDFC balanced advantage fund from HDFC mutual fund.
How does a balanced mutual fund work?
A balanced mutual fund has two components that fulfil two distinct functions. The equity component of this mutual fund helps to keep investors’ buying power from declining. Because they primarily invest in equities, they demand a minimal initial input. Equity fund pricing is determined by a fund’s Net Asset Value minus total liabilities. The mutual fund’s equity holdings are mostly concentrated on bigger, dividend-paying corporations.
To offset the uncertainties posed by equity funds, these balanced mutual funds put the remainder of their capital in debt-oriented programmes. A balanced fund’s debt component consists mostly of investments in bonds as well as other debt instruments. Even though they give lower returns than equities funds, they fulfil two functions. For starters, they aid in the generation of a revenue stream. Second, they contribute to the investor’s overall portfolio’s instability. They are far safer than stock investments, therefore, as a consequence, assist to reduce investment risk.
What are the benefits of balanced mutual funds?
Here are the benefits of investing in a balanced mutual fund:
Reduced risk
Investing simply in equities funds might be dangerous. Thus, the component of debt instruments in these balanced funds serves to smooth off the risk posed by the Equity section.
Tax advantages
Fund managers can use this investing plan to switch between debt instruments and equity without incurring tax liabilities for investors. If the investors moved between funds themselves, they would be liable to capital gains taxation.
Portfolio diversification
Since balanced mutual funds invest in both equities and debt instruments in a balanced manner, they offer the perfect solution to any investor looking to diversify their portfolio.
Who should put their money into balanced mutual funds?
A balanced mutual fund is often the ideal choice for investors who have a low-risk profile but searching for investment alternatives that compensate for surpassing inflation while also generating income to complement their financial requirements.
The benefit of balanced mutual funds is that these funds closely stick to their line of focus. They never go beyond the 65% limit set by the Indian investment guidelines. Currently, HDFC balanced advantage fund from HDFC mutual fund shows an equity allocation of 65.82% and a 19.93% debt allocation.
As a result, during a bullish market run, these balanced funds produce larger returns from their stock component. Similarly, the debt component prevents fund gains from diminishing during a bearish market run. As of right now, HDFC Balanced Advantage Fund Direct Plan’s 1-year growth returns are 19.45%. This balanced fund from HDFC mutual fund has provided 14.79% average annual returns since commencement. This balanced fund has nearly quadrupled the funds put in it every 3 years.
The bottom line
A balanced fund is one of the most commonly purchased mutual fund types, and for good reason. It provides an array of options within one investment, giving investors a diversified approach to their portfolio This two-in-one feature of a balanced fund is what makes it so appealing to investors.
Balanced funds work well as a retirement investment plan and at the same time, can be used as a safer alternative to high-interest fixed deposits. The level of returns you get from investing in a balanced mutual fund will likely be much higher because of the way these funds are structured. It’s important to look at all of your investment options when you’re looking to safely grow your wealth, and balanced funds are definitely one that should be considered.
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