What Is Balanced Fund? Know It in Detail

Balanced funds, as the name suggests, mean the division of funds in such a manner that they remain in a balanced proportion. When it comes to portfolio diversification, balanced funds, also known as hybrid funds are one of the best kinds of investments.

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Balanced funds, either Mutual Funds or Unit Linked Investment Plans (ULIPs), comes with an agenda of diversifying income instruments making them ideal for a medium amount of risk-taking investors.

This article will walk you through a deeper definition of Balanced Funds, how does it works, and which section of the society can plan their next investment in balanced funds. So, without further due, let us dig into the space.

What Is a Balanced Fund?

The idea that runs behind investing in balanced funds is simple and easy to understand. In balanced funds, money is invested in various assets so that at the time of fallback of any one of them, another asset is there for support.

A Unit Linked Investment Plan Balanced fund works with a combination of Equity and Debt funds. The main objectives of balanced funds are:

  • Money is divided into equity and debt funds
  • It is divided into a well-determined proportion
  • Investment diversification in stocks and fixed income instruments
  • Stocks and fixed incomes like bonds, corporate bonds, government securities, money market instruments, etc.

The top benefits under balanced funds are:

  • Multi-asset allocation of funds
  • Multiple investments mean lower risk as compared to a single investment
  • Easy switching from one investment to another up to a specific number
  • Helps in balancing the risk-reward ratio

Balanced Funds in ULIPs

Unit Linked Investment Plans are a kind of insurance plus investment instrument available in the current market. 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.

As we already know by now, an investor has the liberty to invest either in equity funds, or debt funds, or a combination of both. Investment is made keeping in mind the risk-taking appetite of the investor at the time of ULIP investment.

How Do Balanced Funds Work?

Unit linked investment plan balanced funds runs 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 their 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 one type of fund.

Suitability of Balanced Funds

Balanced ULIP funds are ideal for investors with a medium risk-taking appetite. 

Risk-taking appetite is an essential factor not just while buying a policy but in general life as well. When it comes to purchasing a Unit Linked Insurance Plan,

  • Equity funds are associated with higher risks while
  • Debt funds are associated with lower risk compared to equity funds

The main factors determining your risk-taking appetite are:

  • Age
  • Income
  • Financial corpus
  • The number of dependent family members, etc.

If an investor wants to meet their desired financial goals in the future, they need 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.

Final Thought!

Investment in itself is a difficult decision to make. Balanced ULIP funds investment is tricky as it depends on the investor 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 bought and forgotten.

Balanced funds even though are medium risk-taking funds, still, require regular vigilance for better results.

One of the popular investment tool, ULIPs help you achieve your life goals with systematic investments.

Choose wisely, invest carefully!

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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