These funds are for investors who want to get a mix of both equities and debt. Balanced funds get high returns from the equities and in case of any downturn, the debt portion fortifies against them.
Balanced advantage funds are a type of mutual fund product that invests in both equities and bonds. As the name suggests, these schemes are structured to balance and shuffle between equity and debt funds based on the asset classes.
Balanced funds, combines bonds, along with equity stocks, and sometimes money market components in a single portfolio. Usually, these hybrid funds are a fixed mix of stocks and bonds, that are categorized as moderate, or conservative, depending on the equity component. These funds are for investors who want to get a mix of both equities and debt. Balanced funds get high returns from the equities and in case of any downturn, the debt portion fortifies against them.
Experts say risk-averse investors who want to get the best of both equities and debt should opt for balanced funds. For instance, low-risk investors or retired senior citizens can opt for these funds for growth. According to experts, the need for equity exposure is necessary especially for senior citizens who generally scale back risk. Equities help investors beat inflation and ensure the long-term benefit of a retirement corpus. Additionally, with balanced funds, investors can also create an income stream along with maintaining their portfolio volatility.
Investors who are looking for investment options with a medium-term horizon can look at balanced funds. Additionally, investors also looking for a mixture of safety, income, and modest capital appreciation can invest in this category of mutual funds.
As the equity-oriented balanced funds have a larger portion around 65 per cent of their corpus invested in stocks, they get the same tax treatment as equity funds. Hence, if the investments are held for more than 1 year, any capital gains are tax-free.
Comparatively, debt-oriented balanced funds are less volatile. Unlike equity-oriented balanced funds, the debt-oriented funds suit investors with lower risk appetite. Similarly, the debt-oriented balanced funds offer lower returns. The gains of debt-oriented balanced funds are also not eligible for any tax exemption. Note that, the capital gains will be treated as short term and taxed at the normal rates, if investments are held for less than 3 years, in case of the holding period crossing 3 years, the gains will be considered as long term gains and will be taxed at 20 per cent after indexation benefit.