Asset Management Tutorial
- Mutual Funds
- What is Mutual Fund?
- Balanced Funds
- Alpha Formula
- Types of Mutual Funds
- Open Ended vs Closed Ended Mutual Funds
- Dividends vs Growth
- Mutual Fund Analyst
- Exchange Traded Funds (ETF)
- Mutual Funds vs ETFs
- Index Funds vs Mutual Funds
- Shares vs Mutual Funds
- Net Asset Value Formula
- Mutual Fund vs Hedge Fund | Top 7 Differences You Must Know
- Term vs Whole Life Insurance
- Actual Cash Value vs Replacement Cost
- Top 10 Best Mutual Fund Books
Balanced Funds Meaning
Balanced Funds are such type of funds wherein the money received from the investors by the fund houses or the fund managers are invested in 2 or more types of investment avenues which have less risk when compared to a single investment avenue. These are also called or known as Hybrid Funds because of its nature of investment in multiple or diversified instruments. These can either be Debt Oriented Balanced Funds or Equity Oriented Balanced funds based on the nature of its investment category as per the offer document of the fund scheme.
In India, balanced funds generally have 30%-40% of its investment in Equity and the remaining in Bonds and (or) other debt investment instruments. These funds like others are also impacted by the movements in the stock markets as a certain portion is equity-oriented, however, values of these funds in whole are to be less volatile in comparison to a 100% equity fund.
Balance Funds Suitability
It is an ideal option of investment primarily for investors who are either
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- looking for a stable and steady return with mid-term investment holding/return gain period (say 5 years)
- new entrants to the investor’s group with no or limited investment knowledge
- looking for diversification in investment avenues
- Requires to withdraw while maintaining investment.
It would not be an ideal option of investment primarily for investors who are either
- Willing to take or can manage higher risk
- Looking for a high return for their investments
- Looking to invest in a specific choice of the fund since the choice of funds remains with the fund manager.
Mr.Raj wishes to invest a sum of Rs.1,00,000
If Raj is a less risk taker and isn’t willing to take high risk with his investment choice. He might hold a diversified investment portfolio as per below table.
Debt Oriented Fund
If Raj is a risk taker and is willing to take high risk with his investment choice. He might hold a diversified investment portfolio as per below table.
Equity Oriented Fund
An investor must always be thoughtful and remember that their investment in balanced funds is not always protected to market movements and always bears a risk.
Balanced Fund Taxation Advantage
From the tax point of view, taxation policies are different for equity and debt funds. If an investor holds a balanced fund for a period of fewer than 12 months it shall be categorized under Short-term and if exceeds to hold for over a period of 12 months shall be categorized under Long-term.
As per the recent updates, the investment made in debt funds and held for more than three years in India will be categorized under long-term and shall be levied capital gains tax percent cent with indexation benefit. Any earnings made from short term investment on debt investments would be added to the income and taxed as per the income tax slab under which the investor shall come under.
The longer you hold to your balanced fund, the better is taxation benefit they provide
This has been a guide to what are balanced funds and its meaning. Here we discuss the suitability of Balanced Funds along with practical examples and its taxation advantages. You can learn more about from the following articles –