Mutual Funds

Balanced mutual funds – Types & Benefits for investors in 2020

Balanced mutual funds and its types

If you are thinking to invest your money you may always think about how to get maximum profits at the lowest risks. You may always think which financial instruments to buy to get the best risk and reward ratio.

In this scenario balanced mutual funds come in the picture because balanced mutual funds invest money in both equity and debt market but the ratio of investment in both markets is balanced to get maximum profits from both equity and debt instruments.

Most of the time balanced funds are equity-oriented and invest majority portion of funds in equity-related instruments. The ratio of funds invested in equity and debt instrument is based on goals of investor and conditions of the market. The main target of balanced funds is to get maximum profit out of both equity and debt instruments by using specific market strategy or volatility of the market.

Types of balanced mutual funds

Aggressive hybrid funds – Aggressive hybrid funds schemes focus primarily of equity and equity instruments. In these schemes 65%-80% portion of assets is invested in the equity market and 20%-35% portion of assets is invested in debt instruments. This investment scheme is suitable for those investors who want to invest aggressively in the equity market to get profits from the volatility of share market, these investors also have tolerance for ups and downs of equity market.

Balanced hybrid funds – Balanced hybrid funds scheme focus equally on both equity and debt, it maintains a balanced ratio of investment in both markets. In this scheme, 40%-60% portion of assets is invested in the equity market and similarly, 40%-60% portion of assets is invested in the debt market. Majority of the fund will be invested equity or debt instrument that depends on the situation of the market and goals of the investor.

Conservative hybrid funds – Conservative hybrid funds schemes focus primarily on debt instruments. In these schemes, 10%-25% portion of assets is invested in the equity market and 75%-90% portion of assets is invested in debt instruments. This investment scheme is suitable for investors with low-risk tolerance because in this scheme majority of funds are invested in stable and less volatile instruments.

Who should invest in balanced funds?

Balanced funds are suitable for those investors who want safety and those who can actively take decisions as per market conditions. Hybrid schemes usually provide good returns because investment ratio is managed in such manner which can provide the best possible return when any major event took place in the market.

Balanced funds are a good option for those investors who are willing to invest in both debt and equity. Hybrid schemes are one of the best options for those investors who can take a quick decision as per market conditions, hybrid investors get maximum profits during a bull run or uptrend of the equity market.

Benefits of Balanced funds

Tax benefits – Balanced funds schemes are very good in terms of tax saving, it allows funds managers to shift between debt and equity market without presenting investors with tax charges if investors themselves have to move between both funds than they would be subjected to taxation for capital gains. This could result in high tax charges to the investor but in balanced schemes funds managers have the option to shift between debt and equity market so it can save additional tax charges.

Risk reduction – Balanced funds are excellent schemes when it comes to diversification of portfolio since investor’s money is invested in both equity and debt markets, there are high chances to maximize the profit with lowest potential risk. Equity investments are volatile which have potential to provide maximum profits on investment while debt funds work as a shield to avoid any major loss because debt instruments are stable and secure which provide a fixed return on investment.

Investment only on equity market can be risky because equity market’s future trends are not always predicted also equity market never moves in the same trend for a long time if the market starts moving is a downtrend or unpredicted trend than it can cause major loss to investors if funds are only invested in the equity market.

While balanced funds maintain an excellent ratio of investment in both equity and debt market just in case equity market decline than debt instruments work as a protective shield against any major loss.

Protection against inflation – Since investors have diversified portfolio in balanced funds investment, so a part of investment fund have been invested in debt instruments. Debt investments usually include international bonds, these international bonds can work as a shield against rising inflation because these bonds give returns from those countries which are not hit by the rising rate of inflation.

Re-balancing of funds – Since in balanced funds investors money is invested in both equity and debt market but in certain cases equity market does not move in predict trend, in those cases investors can move their assets from equity to debt market to avoid any major loss or minimize the loss.

Points to consider before investment

Goals of investment – Investor must set its goal that what returns he/she expect from its investment. The investor must research and understand the nature of balanced funds investment because these investment schemes are highly diversified, schemes contain equity investment which is usually volatile.

Volatility can be good if equity market moves in desired or predicted trend at the same time it can work in a negative way if equity market moves in unpredicted trend so the investor must be mentally prepared to deal with volatile situations.

Investment period – Investor must decide about lock-in period of its investment since balanced mutual funds or any other mutual funds schemes give better returns in mid to long term investment, these are not recommended for short term investments.

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