Equity mutual funds are known to generate good returns as compared to any other asset class. Debt funds, on the other hand, are known to limit the risk factor and provide more or less stable returns. But what if investors can get the best of both types of funds where they can maximize their returns at the same time limit their exposure too.
Balanced funds are a suitable answer or a solution for investors looking for the high earning potential of equity funds and the limited exposure of the debt funds. Balanced funds are classified under hybrid funds and provide the benefit of wealth-building from the equity portion of the fund and provide capital protection from the debt portion of the fund.
Hybrid funds invest approximately 40% to 60% in equity and equity-related instruments and the balance is invested in debt and debt-related instruments. Where the investment is higher in equity, such a fund is known as an equity-oriented hybrid fund. Similarly, where the dominant investment is in debt, such a fund is known as a debt-oriented fund.
Balanced hybrid funds are mutual funds that invest in both equity and debt instruments. The purpose of these funds is to provide investors with a balanced portfolio that can generate returns from both equity and debt markets. These funds are ideal for investors who want to invest in both equity and debt markets but do not have the time or expertise to manage their investments actively. The allocation between equity and debt instruments is decided by the fund manager based on market conditions and the fund’s investment objectives.
These funds provide the benefits of equity funds as well as debt funds. The idea of the balanced funds is to invest more or less in equal proportion on each of the asset classes to ensure that the investors are protected against the capital erosion which is a risk in the equity funds as well as get high returns which are usually not possible in debt funds. These funds are ideal for novice or new and young investors who are starting in the mutual fund market and may want to limit their exposure and at the same time earn higher returns than traditional investment options.
The fund managers of the balanced hybrid funds aim to create a portfolio with a balance of risk and return expectations of the dynamic and aggressive as well as risk-averse investors. Hence, these funds are ideal for moderately conservative investors.
Balanced hybrid funds have a host of benefits and limitations that have to be thoroughly understood by investors before making an investment decision. Some of the pros and cons of these funds that can help investors understand these funds better are mentioned below.
The advantages of investing in balanced hybrid funds are
The prime benefit of Balanced hybrid funds is diversification. Investors can get the benefit of equity funds as well as debt funds under a single Mutual Fund. This diversification provides the investors with the best of both worlds by limiting the risk involved.
Another added advantage of investing in balanced hybrid funds is the reduced cost of investment. Investors do not have to invest in multiple funds of different asset classes to gain the advantages of each of the funds. they can simply choose a balanced hybrid fund and thereby cost of investment by almost half. This reduced expense ratio will reflect eventually higher returns ultimately benefiting the investors.
Balanced hybrid funds have the advantage of the equity component of the funds which translates to better returns as compared to plain vanilla debt funds. The returns are inflation-adjusted returns which is not usually the case with traditional investment options like bank deposits or other government savings schemes like PPF, SCSS,, etc.
Investors have the benefit of limiting their exposure to the volatility of the market due to the debt portion in the fund. The debt portion also provides a sense of stability in the fund performance.
Let us now discuss the various risks associated with balanced funds. Being the combination of equity and debt instruments, these funds also have the inherent limitations of the individual asset classes. Some of such risks are mentioned below.
Balanced funds are a combination of equity and debt instruments. Hence, the taxation of these funds depends on the dominant investment class in the fund. If the equity component in the fund has an asset allocation of 65% or more the hybrid fund is taxed as an equity fund and similarly if the debt component is more than 65% it is taxed as a debt fund.
The details of the same are tabled below
| Type of funds | Short term gains | Tax rate | Long term gains | Tax rate |
| Balanced equity-oriented mutual funds (equity and equity related instruments are the dominant investment class in the fund) | Less than 12 months | 15% (plus cess and surcharge) | 12 months and more | Exempt up to Rs.1,00,000Above Rs.1,00,000 taxed at 10% (plus cess and surcharge) |
| Balanced debt oriented mutual funds (debt and debt related instruments are the dominant investment class in the fund) | Less than 36 months | Slab rate of investor | 36 months and more | 20% (plus cess and surcharge) with indexation |
Apart from the capital gain tax, dividends from these funds are also taxed in the hands of the investors. Dividend income is added to the taxable income of the investor and taxed as per the applicable slab rates.
Like any other investment, there are many factors to be considered while investing in balanced hybrid funds. Some of the common factors of consideration are detailed below.
The first and foremost point of consideration for any investment is the risk-return analysis. Investors have to carefully understand the risks of investment at the same time not have unrealistic returns expectations.
The cost of investment is the expense ratio to be paid to the fund house. The expense ratio of balanced hybrid funds is lower in comparison to two separate investments in equity and debt funds. This reduced cost directly contributes to the increase in potential returns generated by the fund.
The investment horizon and the investment goals of the investor should be in line with that of the fund. This will help the investor in maximising their wealth and meeting their financial goals.
This is a regular plan belonging to the balanced hybrid fund category. The fund was launched in the year 2009 and the basic details of the fund are given below.
| Particulars | Details |
| Fund manager | Mr. Bharat Lahoti |
| Launch date | 20th January 2009 |
| Minimum SIP investment | Rs. 1,000 |
| Expense ratio | 1.88% |
| Risk | Moderately high |
The returns provided by the fund as of 21st August 2021 are tabled below
| Period | 6 months | 1 yr | 3 yrs | 5 yrs | Since launch |
| Returns | 8.27% | 40.34% | 12.77% | 12.47% | 10.85% |
| Particulars | Details |
| Fund manager | Mr. Praveen Ayathan |
| Launch date | 1st January 2013 |
| Minimum SIP investment | Rs. 1,000 |
| Expense ratio | 0.70% |
| Risk | Low to Moderate |
This is a direct plan belonging to the balanced hybrid fund category. The fund was launched in the year 2013 and the basic details of the fund are given below.
The returns provided by the fund as of 21st August 2021 are tabled below
| Period | 6 months | 1 yr | 3 yrs | 5 yrs | Since launch |
| Returns | 5.68% | 14.22% | 9.74% | 9.54% | 12.45% |
This is a direct plan belonging to the aggressive hybrid fund category. The fund was launched in the year 2013 and the basic details of the fund are given below.
| Particulars | Details |
| Fund manager | Mr. Manish Banthia |
| Launch date | 1st January 2013 |
| Minimum SIP investment | Rs. 1,000 |
| Expense ratio | 1.05% |
| Risk | Moderate |
The returns provided by the fund as of 21st August 2021 are tabled below
| Period | 6 months | 1 yr | 3 yrs | 5 yrs | Since launch |
| Returns | 5.78% | 23.79% | 11.89% | 11.45% | 13.29% |
Balanced funds are categorised under the hybrid funds category. However, unlike aggressive hybrid funds, these funds have the advantage of more or less similar investments in equity and debt. These funds thus become a good investment opportunity for moderately conservative investors looking for better investment avenues with limited risks.
1. What is the usual investment pattern in balanced funds?
A. Balanced funds invest approximately 40%-60% of the fund in equity instruments and the balance in debt securities.
2. What is the usual investment tenure for balanced hybrid funds?
A. There is no fixed tenure of investment in balanced hybrid funds. However, investors should stay invested for at least 3 years to realize the full potential of the fund.
3. What is credit risk in balanced hybrid funds?
A. Credit risk is a risk of default by the debt security issuing authority at the time of redemption. Balanced funds consist of debt portions in the portfolio which makes them vulnerable to credit risks.
4. Can a person invest in balanced hybrid funds through the Fisdom app?
A. Yes. Investment in balanced funds through Fisdom is quite simple and can be done easily at the convenience of the investors.
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