What are Balanced Mutual Funds? Meaning, Types & Taxation

Mutual funds in India can be bifurcated into different categories in India. One such popular category is Balanced Funds. So, here you shall come to know the Balanced funds meaning, types, advantages of investing in these mutual funds. You shall also learn the balance funds taxation rules and be well versed with important investment details.

Balanced Funds: Meaning

Balanced Funds are the category of mutual funds which invests all its asset in a mix of equity and debt. The fund is also known as the Hybrid fund. The fund is designed to provide investors safety from volatility, give steady income, and modest capital appreciation. The fund generally follows the investment objective closely on investment types.

If you wish to checkout the balanced funds advantages as well as disadvantages plus few good examples of balanced funds, keep reading further…

Balanced Funds: Types

1. Equity oriented Balanced Funds:

This fund type invests 65-80% in equity and rest in debt securities. The equity portfolio of the fund is invested in multi-cap, large caps or mid cap stocks according to the investment objective of the fund.

2. Debt Oriented Balanced Funds:

It keeps its majority of the holdings in Debt securities in the range of 65-80%. And the rest of equity and cash components. The fund is suitable for investors with a conservative approach.

Investment in Balanced Funds:

Balanced funds have the benefit of both asset classes and are most suited for 3-6 years investment horizon. The fund balances the gap between riskier equity segment and safer debt segment.

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Investment in balanced funds is most suitable for first-time investors and for those investors who want to have returns like equity fund but don’t have the risk appetite. It gives a superior risk-adjusted return to investors.

Now, let’s have a look at some of the advantages and disadvantages of investing in Balanced Mutual Funds.

Balanced Mutual Funds: Advantages & Disadvantages

Balanced Funds: Advantages to Know

  • Diversification: The fund offers its investor a diversified nature of investment across equity and debt securities. It helps the fund manager to manage risk much more efficiently.
  • Steady Income: Debt securities from the fund generates interest income and is not affected by volatility in the market. Due to its balanced asset base, the fund’s return is more stable than equity funds.
  • Low Risk: Due to the fund’s mix of debt and equity, the risk factors are greatly reduced and has less effect on volatility in the fund compared to equity fund.

Balanced Funds: Disadvantages to Know

  • As the portfolio of balanced fund has 65-80% exposure in equity, it can effect the return of the fund during market downturn.
  • Investors need to study the both equity and bond market performance to keep track of investment.
  • Due to the re-balancing of the portfolio during bull and bear phase of the market, it can increase the expense ratio of the fund which can effect the return.

Balanced Mutual Funds: Taxation

Balanced Funds are treated as equity funds if the funds have more than 65% exposure in equity.

As per amendment in Budget 2018: Tax obligation for the investment in the equity-oriented balanced fund for the period of more than 1 year has been changed. The Long term capital gains (LTCG) on equity oriented funds that were exempt from tax earlier are now taxable subject to certain conditions. LTCG in excess of Rs.1 lakh shall be taxed @10% without giving the benefit of indexation.

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For investments that are redeemed within 1 year of purchase, the gains are regarded as short term capital gain and taxed @15%.

Taxation for the debt-oriented balanced fund is done as per debt funds. Investment period of less than 3 yrs is treated as short term duration and gains are taxed at 10%. Investment period of more than 3 yrs, (long term duration) it taxed at 20%  including the benefit of indexation.

Balanced Funds: Examples

There are a number of funds available to investors. Some of the examples of balanced funds are:balanced funds, balanced mutual funds, balanced funds types, balanced funds advantages, mutual funds

  • ICICI Pru Balanced Fund
  • HDFC Balanced Fund
  • Tata Balanced Fund
  • Principal Balanced Fund
  • UTI Balanced Fund
  • DSP-BlackRock Balanced Fund
  • Reliance-Regular Saving Fund-  Balanced option
  • L&T India Prudence Fund
  • Franklin India Balanced Fund
  • SBI Magnum Balanced Fund

Note: These are just relevant examples of balanced funds to explain in detail on this topic. It should not be considered as investment advice.

Balanced Funds: A Final Take

A Balanced fund is best suited for investors with low to medium risk appetite. Hence, balanced funds are suitable for investors to meet their medium to long-term financial goals. While choosing a good mutual fund , should check the fund’s the past performance and its benchmark return before investment. Balanced Funds may perform even better than Large cap equity funds and also NIFTY over the long term.

Disclaimer: This post is not a financial advice in any regard. Please consult your financial adviser before taking any investment decision. Fintrakk.com or any of its representatives are not responsible for any loss that might happen due to your investments. Kindly follow due diligence and be cautious while investing your money in risky asset classes.

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Remember, Mutual Funds are subject to market risk. After all, its your hard earned money, so just be careful before investing it especially in riskier assets. What is your investment choice? Do you prefer investing in balanced mutual funds or you are satisfied with traditional investments like Fixed deposits and gold. Do share your feedback in the comments section.

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