Balanced Funds

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A balanced fund is one such category of investment that offers an element of risk mitigation and also helps in the growth of the investor. Balanced, as the name suggests, offers the investor an option to allocate their funds in a balanced proportion. Balanced funds, also known as hybrid funds are one of the best investment categories these days when it comes to investing.

Let us discuss more balanced funds (Hybrid funds) and some wider categories under which balanced funds befall for a better and in-depth understanding.

What Is a Balanced Fund?

Balanced funds, as we already know, are funds in which funds are distributed proportionately. Balanced funds work on the concept of asset allocation. In simple words, hybrid or balanced funds invest into a combination of equity, or debt, or a culmination of both.

Investment in different assets plays a major role not just in the portfolio diversification of the investor but also improves the risk-reward ratio.

Sample illustration for better understanding of asset allocation

BSE Sensex

Equity Return

Debt Return

2015

-5%

+8.70%

2017

-28%

- 6%

Different assets with different performance over the years helps the investors diversify their portfolio by allocation of their money wisely across different classes of funds. 

What Is Balanced Fund in ULIP?

Unit Linked Insurance Plans are just like mutual funds but only sugar-coated with an extra feature of insurance cover. Unlike other mutual funds, ULIPs come with dual benefits, that is, offering insurance plus investment together. Balanced mutual funds or balanced Unit Linked Investment plans, both work on the principle of diversifying investments.

In ULIP balanced funds, a part of your premium is invested in life insurance, while the other part is used in investments of your caliber. Investments under balanced ULIP funds are done keeping in mind the risk-taking capacity of the investor.

Objectives and Feature of Balanced Funds

Balanced funds or Hybrid funds come with the following features and objectives. Knowing and understanding the features will help the investor invest wisely so that maximum profits are attained in the future.

Objectives and features of balanced funds are:

  • Balanced funds come with the objective of portfolio diversification.
  • Helps in rebalancing the risk-reward ratio.
  • Rebalancing of asset allocation is taken care of by the fund managers.
  • Money is divided into equity, or debt, or a combination of both.
  • Smooth-shifting from one investment to another up to a specific number.
  • Investment diversification in stocks and fixed income instruments.
  • Stocks and fixed incomes like bonds, corporate bonds, government securities, money market instruments, etc.
  • Investors are rewarded with stability and decent returns.

Things to Keep In Mind While Investing In Balanced Funds

  1. Return On Investment

    An investor with a medium risk-taking appetite should go for balanced funds. Balanced funds offer a much better return on investment compared to any other hybrid fund like a conservative hybrid fund, or aggressive hybrid fund, etc. As the balanced funds offer medium risk, the returns are also low compared to other fund categories.

  2. Risk Involvement

    The risk involvement ratio in a balanced fund is comparatively low from other fund investments. Even though the risk factor is low, balanced funds are not completely risk-free. The equity fund investment under balanced funds makes them vulnerable and a little risky. Continuous rebalancing of the portfolio helps in earning profits and stability in the market.

  3. Investment Horizon

    A suitable type of fund for conservative investors, balanced funds are beneficial for people who are ready to invest their money for a minimum of 5 years. Apart from time investment, other factors also play a role when you invest in balanced funds. They are:

    The main factors determining your time horizon are:

    • Age
    • Income
    • Financial corpus
    • Investment period
    • The number of dependents, etc.
  4. Charges

    An investor is allowed to choose the funds he/she is willing to put his/her money on, and the money is then invested in various equity funds, debt funds, or a mix of both.

    These charges are levied for managing your funds. This is charged by the insurer as a percentage of the fund’s value and is reduced before computing the net asset value of the fund. As per the IRDAI guidelines, a fixed percentage is levied upon the investor while investing in balanced funds.

  5. Financial Goal

    Financial goal plays a crucial role, not just while investing in balanced funds but general life as well. If an investor wants to meet his/her desired financial goals in the future, he/she needs to make smart investment decisions at the present. 

    Be it your post-retirement life, your child’s future education, your dream goals, your family’s future, or any other future financial requirements, it is important to outline your personal investment goals carefully.

    Balanced funds should be considered for financial goals that can be achieved in the next 5 to 7 years.

  6. Taxation On Profits

    Capital gains are taxable under the balanced fund category. On one hand,

    • Equity-oriented balanced funds are taxed as pure equity, whereas
    • Long-term capital gains on equity are generally taxed around 10%. Also,
    • Short-term capital gains on equity may be taxed at around 15%.

    *PolicyBazaar does not endorse, rate, or recommend any particular insurer or insurance product by an insurer or any other financial product.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

How Do Balanced Funds Work?

Unit linked investment plan balanced funds run together with a combination of both, equity fund and debt fund. Equity funds come with high risk along with higher growth potential in the long run, while debt funds come with moderate risk along with saving opportunities of your wealth.

Let us study an example to understand balanced fund investment better.

A ULIP balanced fund could have a 50% allocation in equity funds and a 50% allocation in debt funds. 50:50 allocation comes with an option of going 10% above the decided limit as per the market condition. This means that in case of market instability and anticipated losses, an investor can shift his/her investments in the debt market up to 60% of total assets at the maximum.

This shifting of funds from equity to debt or vice versa can help the investor reduce the amount of risk one takes by investing in just 1 type of fund.

Sample Illustration

For instance, if an investor is willing to contribute 1 lakh in balanced funds with 70% contribution in debt funds and 30% contribution in equity funds, his/her investments may look like this:

Investments

Investment %

Average Return %

Investment Value

Average Return

Corporate Bonds

50%

2.50%

Rs. 50,000/-

Rs. 1,250/-

Government Bonds

20%

4.00%

Rs. 20,000/-

Rs. 800/-

Equity

30%

8.17%

Rs. 30,000/-

Rs. 2,451/-

*Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product by an insurer or any other financial product.

How to Invest in Balanced Funds?

If you are convinced about buying a balanced fund, all you have to do is follow these simple and hassle-free steps and you can start investing in a hybrid or balanced funds sitting in the comfort of your home:

  • Step 1: Open an account with AMC (Asset Management Company) online
  • Also can be done through an online brokerage, or
  • Any local distributor
  • Step 2: Complete the KYC (Know Your Customer) formalities
  • For KYC, basic details required are:
    • Identity proof
    • Age proof
    • Address proof
    • PAN details, etc.
  • Step 3: Pick funds best suited as per your requirements and affordability
  • Step 4: Decide on a period of investment like
  • Systematic Investment Plan
  • Lump-sum payment
  • Step 5: Select the transfer amount
  • Step 6: Choose the payment option and make payments

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Top Performing Balanced Funds in India

Balanced Funds

5 Year Returns

3 Year Returns

Minimum Investment

Axis Equity Hybrid Fund - Direct Plan-Growth

-

17.04%

Rs. 5,000/-

Kotak Equity Hybrid Fund - Direct Plan-Growth

14.38%

16.78%

Rs. 5,000/-

DSP Equity & Bond Fund - Direct Plan-Growth

14.76%

16.46%

Rs. 500/-

Mirae Asset Hybrid - Equity Fund - Direct Plan-Growth

16.16%

16.24%

Rs. 5,000/-

ICICI Prudential Equity & Debt Fund - Direct Plan-Growth

15.12%

15.71%

Rs. 5,000/-

SBI Equity Hybrid Fund - Direct Plan-Growth

14.48%

15.43%

Rs. 1,000/-

Axis Equity Hybrid

-

15.33%

Rs. 5,000/-

Kotak Equity Hybrid

12.85%

15.31%

Rs. 5,000/-

DSP Equity & Bond Fund

13.56%

15.30%

Rs. 500/-

Edelweiss Balanced Advantage Fund - Direct Plan-Growth

14.41%

15.14%

Rs. 5,000/-

*Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product by an insurer or any other financial product.

If we talk about sub-categories of balanced funds, here are the best-balanced funds under each category.

  1. Top 3 Large Cap Balanced Funds

    Fund

    5-year Returns (in%)

    10-year Returns (in%)

    Bharti AXA Life – Grow Money Plus

    17.13

    16.11

    Bharti AXA Life – Grow Money Pension Plus

    16.97

    16.05

    Tata AIA Life- Life Large Cap Equity Fund 

    17.81

    15.96

  2. Top 3 Mid Cap Balanced Funds

    Fund

    5-year Returns (in%) 

    10-year Returns (in%)

    Tata AIA Life – Whole Life Mid Cap Equity Fund 

    16.63

    20.19

    Aditya Birla Sun Life – Individual Multiplier Fund 

    14.09

    17.13

    Max Life High Growth Fund 

    18.6

    16.71

  3. Top 3 Multi-Cap Balanced Funds

    Fund

    5-year Returns (in%)

    10-year Returns (in%)

    Tata AIA Life- Tata AIA Top 200

    20.19

    18.2

    Tata AIA Life- Super Select Equity Pension Fund 

    17.04

    17.15

    Tata AIA Life Super Select Equity Fund 

    16.76

    16.93

    *Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product by an insurer or any other financial product.

Investment in itself is a difficult decision to make. Balanced funds investment is tricky as it depends on the investor and the fund manager how much money to allocate and shift from one fund to another at the right time. Balanced funds need to be taken care of every time and this is not the kind of investment one can buy and forget about.

Balanced funds even though are medium risk-taking funds, still, require regular vigilance for better results. It is important to choose funds that can be managed by the investor and looked upon just like a baby.

Choose wisely, invest carefully!

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