Should You Invest In A Balanced Fund?

A mutual fund uses invested money of various individuals and invests them into various pre-set allocations. These allocations are equity, debt or any other asset class as prescribed by the fund. A balanced fund is a type of mutual fund which invests a portion of the fund into equities and the rest into debt instruments. The equity debt allocation is often 65:35 or more depending upon the fund’s mandate.


This fund is an excellent choice for newcomers or risk-averse investors. Here are a few reasons.

One, this fund by design has a safety mechanism. While the major allocation of the fund may be in the equities, the 35% allocation into debt instruments acts as a safety valve during volatile market periods. Even if the equities generate poor returns at the time, the debt instruments ensure the invested money does not go to waste and returns are generated on a consistent basis.

Two, the debt allocation ensures stability during volatile market periods and the equity allocation during bull runs generate excellent returns. Since the fund’s major allocation is into equities, an investor has a good chance to see her or his investment into the fund deliver quite the returns.

Three, the fund’s major allocation into equities may cause apprehension into one or two investors who may feel the market volatility will deliver poor returns. However, like all mutual funds, a balanced fund comes with the expertise of a fund manager. He or she will decide whether to invest into mid-cap or large-cap funds, how much to invest, and when to invest. The invested money is in safe hands.

Four, mutual funds that invest at least 65% into equities qualify as equity funds. This means any capital gains after one year of holding are tax exempt. Therefore, fund managers always keep the 65:35 allocation ratio intact. If an investor held two different funds—equity and debt, a short-term capital gains tax would be levied on the debt fund for any holding less than three years.

A balanced fund was designed keeping the mix of capital appreciation and safety from market volatility in mind. It is recommended for newcomers to invest in them.

How to choose the right mutual fund

Image result for choose the right mutual fund imagesEveryone has various goals that one aims to accomplish. These goals may be sending your child abroad for higher education, buying your dream car, purchasing a family home etc. These goals require finances and in order to attain such large sums of money you can either save or invest. Saving is an important financial habit that you should develop regardless of your needs. However, investments are carried out for the sole purpose of wealth accumulation.

One such common investment instrument is mutual funds. They are considered as one of the more popular mutual fund investments. If you are planning to accumulate some excess wealth over and above your income, then here is your guide to how mutual funds work:

A mutual fund is an investment vehicle that pools in funds from investors who share the same investment objective. According to the stated objective, the funds are then invested in various assets. Such investments are usually carried out by Asset Management companies.

In accordance with your mutual fund objective, you can choose from the following common mutual funds:

  • Equity Funds
  • Debt Funds
  • Money Market Funds
  • Index Funds
  • Fixed Income Funds
  • Balanced Funds
  • Speciality Funds

In order to understand the flow of the money in a mutual fund investment, refer to the diagram below.


Today, there are close to 40 organisations handling mutual fund investment worth Rs 10 lakh crore. With multiple options, it can become difficult to choose which fund you want to invest in. By following our 5-step guide, we can help you decide your next investment venture.

Step 1

Check Past Performance – While analysing the funds one sure shot way to find out how your fund will perform is by looking at its past performances. Not just that, checking the credit history of the scheme, the fund manager, investment decisions etc will all add to an informed choice.

Step 2

Risk Analysis – Before investing make sure, you have demarcated your room for rick and investment horizon. Choose a fund that matches the same amount of risk. Do not get lured by trying to diversify your portfolio too much.

Step 3

Diversification – Check to see whether your mutual fund offers a certain level of diversification to your portfolio. This is essential because diversification ensures that the risk propensity is reduced.

Step 4

Know your fund manager – Before choosing your fund manager make sure you do a thorough research of his/her past investment decisions. Evaluate the performance of the funds that the manager has handled.

Step 5

Costs – A fund that costs higher should also yield higher benefits than lower priced mutual funds. Small differences in the fee can translate into large discrepancies in returns.