Investment School: What is balanced fund?

What is balanced fund?

Balanced fund are a type of funds which does not take full exposure either in equity or in debt. It invests in both equity and debt in a well defined ratio as per the fund's mandate.These funds are also called as hybrid funds.

Equity Oriented Hybrid Funds

These funds usually invest in the ratio 60:40(equity : debt) or 75:25 (equity : debt). This is suitable for investors who wants to get benefited from the equity market but at the same time would not like to risk his entire money with equites. These funds perform better than equity funds during the downturn in markets and have a better shield in terms of debt component.

In case of downturn, these funds increase their debt component to reduce the impact of falling market in the fund's NAV.Similarly during a bull run, these fund will increase their equity exposure to get benefited from the bull run. So a moderate risk investor can choose this fund to have a balanced return.

Debt Oriented balanced Mutual Funds

The pension funds are typical example of debt oriented balanced mutual funds. These have a big chunk(>70%) of their portfolio in debt instruments. These funds are designed to get returns from debt instruments but have a small portion invested in equities to get that additional kicker return to outpace typical fixed income instruments like bank FDs.In order to get an edge over typical debt instruments and also provide investor an extra bit of return, they have a limited exposure to equities.

So an investor in the age range of >30 who has dependents and who can't take high level of risk, can opt for balanced fund to bring in stability to his portfolio.

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