Balanced Mutual Funds – Concept, Workings, Types, Benefits, Features & more

Know everything about Balanced Mutual Funds here. Over the last few decades, mutual funds have proved to be the best port for investment.

Investors are increasingly parking their money in varying mutual fund plans. The balanced fund plan is one of them.

Though, most investors currently view this mutual funds category as a new variant of hybrid funds because few of its features are quite similar. 

It is possible somebody has also advised you about such funds where you can park your money. 

But before you move on, make sure you first grasp the full information about these mutual funds plans. 

In this article, we’ve shared all the details regarding this prominent category of the mutual funds so that you can come up with the best decision.  

What are Balanced Mutual Funds?

Balanced mutual funds consist of both debt and equity funds in a balanced proportion.

These mutual funds are quite popular among investors because these funds provide you higher returns at a lower risk level. 

For risk-averse investors, they are proved to be a quite popular option. 

If you want to avoid unnecessary risk, which is a usual thing with any investment, this can be the best investment plan for you. 

Within the single portfolio of a balanced mutual fund, you find bond components, stock components, and money market components, etc. 

These are streamlined in a manner that it keeps generating higher return at a minimal risk level. 

Growth and income are the main objectives of these funds. In a nutshell, these funds provide you the right mix of income, safety, and capital appreciation.  

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Understanding the Balanced Funds 

Balanced mutual funds are similar to the hybrid fund in which the fund house managers utilize asset allocation and diversification strategy to equalize the risk and return ratio. 

Such as, fund managers invest in equities to capture the higher returns and invest in debt to keep the risk minimal. 

It also follow a similar rule; that’s why these funds are also known as asset allocation funds. 

Though these funds do not change their asset mix materially, this makes them slightly different from other funds. Such as, other funds are actively managed, but these aren’t. 

Let’s have a look at the elements of balanced mutual funds to understand it much better. 

Find details of other Types of Funds here

Balanced Mutual Fund: Elements of a Portfolio

Normally, investors with a lower risk appetite or investors who look for the safest retirement plan opt for balanced fund. 

These funds promise higher growth of the portfolio while generating higher returns.  Thanks to the equity components, which ensure the long-term preservation of money in a profitable way. 

On the other hand, the debt component of balanced mutual funds serves two critical purposes.

• Manage Portfolio Volatility
• An Income Stream Creation

For instance, debt funds keep generating interest income and provide semi-annual payments, quarterly payments to investors. 

Though, few stocks can also give quarterly dividend payouts if the investment is done on a large company.

It uplifts the yield of a portfolio, which highlights the specialty of these mutual funds. 

Types of Balanced Funds

Balanced mutual funds are also split into two categories that are as follows-

Debt-Oriented Balanced Funds

A big portion of these funds consists of debt asset securities.

This type of balanced mutual fund comes with a lesser risk probability, and an investor can generate a consistent return for the long-term. 

Equity-Oriented Balanced Funds

A big portion of these funds consists of equity securities.

Though, this type of these fund focuses more on offering aggressive capital appreciation and doesn’t care for regular or periodic income generation. 

Find details of all types of Debt Funds here

Who should Invest in a Balanced Fund?

Balanced mutual funds are the best option for investors whose risk appetite is relatively minimal. But, if you are ready to go slightly above your risk appetite, these funds can prove to be a great option. 

For instance, they invest in both equities and debt capitals. Investors with a lower risk appetite can choose debt oriented mutual funds. 

On the other hand, investors with moderately higher risk appetite can choose equity-oriented mutual funds. 

The less risky nature of this funds makes them relatively better alternative for investment. 

In most instances, there’s no guarantee of interest, which can also be assumed as a little shortcoming of these funds. 

It happens because these funds aren’t actively managed. In case of special moments, such as in bearish market conditions, managers re-evaluate or modify the portfolio. 

Still, for the new investors, these funds can prove to be a great option. For instance, balanced mutual funds focus more on the portfolio’s growth. 

Fund managers of these mutual funds invest in numerous asset classes after a brief analysis of the market. Fund managers follow a balanced strategy right from the beginning.

It makes the portfolio stronger enough that it smoothly deals with the upcoming challenges in the market. Therefore, if you’ve set a long-term goal, these funds can provide you higher returns. 

These funds predominantly invest in high-rated bonds and large-cap stocks, which build a consistent stream of Income.

Benefits of Balanced Mutual Funds

Here are the major benefits of Balanced Funds –

Risk Reduction

It’s one of the most notable points that make balanced mutual funds the best option. Investment in these mutual funds is considered less risky. 

Though, we can’t deny that these mutual funds consist of a few portions of equity funds.

Still, these are safe because the debt instruments proportion will keep delivering a fixed return to the investors while balancing off the entire portfolio. 

In most instances, fund managers can also increase the portfolio’s debt components to chop off the risk. 

Re-Balancing

In many cases, equity markets can go through extensive twists and turns. It raises the tense situation for the investors. But if you’ve parked your money in balanced mutual funds, you can feel secure. 

If any situation occurs, which indicates a sign of a downturn in the financial market, the fund managers purchase or sell out assets to balance the portfolio. 

Diversification of Portfolio

Everyone is aware of the benefits of a diversified portfolio. If one of your investments fails to outperform or incurs a loss, the profit from other investments can take you out of the financial burden. 

Though, in balanced mutual funds, you do not need to invest in the varying asset classes on your own. 

The expert fund managers divide your investment into numerous asset classes through a single mutual fund.

In this way, investors reap the benefits of capital appreciation and mitigate the risk involvements.  

High Returns

These mutual funds are a strategic mix of assets that involves debt and equity components in a balanced proportion. 

It avoids the market volatility impact on these funds. Similarly, investors can keep extracting higher returns. 

Check out all types of Hybrid Funds here                  

Drawbacks of Balanced Mutual Funds

The disadvantages of balanced mutual funds are also highly considered. Such as, the funds have the power of asset allocation. 

Investors can’t individually split their assets. Hence, it can crop up as a barrier for your tax-planning moves. For instance, many people invest in the mutual fund for a tax-advantage purpose. 

Since they can consist of growth stocks in a good number, so these stocks are taxable. That doesn’t make it a much attractive option for many investors. 

Things to Consider before Investing in Balanced Mutual Funds

Here are few very important things anyone should consider before investing in Balance Funds –

Investment Objective

Before moving ahead with any investment, you should set the investment objective. Balanced mutual funds are the safest investment option for investors with a low or moderate risk appetite.

Therefore, if you anticipate achieving that objective without putting your money on the risk, you can proceed with the these mutual funds plan.

Investment Types

Few investors want to earn higher returns, while few investors prefer to invest in a safe zone.

For this, it put forward two investment types, the debt-oriented balanced mutual funds, and equity-oriented balanced funds.

So make sure you’ve already picked out the best investment option. 

Avoid Long Term Bonds

The risk-averse investor should avoid investing in mutual funds that contain long-term bonds, or else, the heavy investment reflects in mid-caps. 

Check Historical & Current Performance

Make sure you study the mutual fund scheme properly. Check out their historical data and the current performance of the fund house.

After all, no one would like to give their money for investment in the inexperienced hands. Make sure the fund house you’ve opted for a balanced mutual fund is reliable and professional.

Balanced Mutual Funds – Conclusion

 So, now you’ve got a clear insight into balanced mutual funds. No wonder these funds can prove to be the best investment alternative to you as, at less risk, these funds deliver you higher returns. 

Though, the overall concept of these mutual fund is quite similar to the hybrid fund.

Still, only new investors who hold minimal or zero knowledge about investment prefer to park their money in these funds. 

There’re a few shortcomings of these funds. So make sure you’re already familiar with them. 

These funds don’t guarantee you returns since the managers don’t actively manage them. Only in a highly bearish condition, fund managers shift the asset classes to balance the portfolio. 

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