Balanced mutual funds are a type of hybrid mutual funds. Hybrid mutual funds invest in both debt and equity instruments. The purpose of this fund is to achieve maximum diversification and get good returns. Such a fund is an ideal choice for beginners as well as core experienced investors.
Hybrid funds are typically equity-oriented as they invest about 50% to 70% of the portfolio in equities and the rest in debt instruments. Hybrid funds often balance the ratio of risk-reward and optimise the return on investment. In short, hybrid funds are a combination of equity and debt segments.
Balanced mutual funds offer a higher degree of diversification in comparison to equity based mutual funds. Also, an investor is not required to analyse a particular mutual fund. The fund manager performs all duties on behalf of the investors. Since a balanced mutual fund is a strategic mix of debt and equity instruments, the fund is less vulnerable to market volatility. The equity component of the fund generates capital appreciation while the debt component provides protect against market volatility. In a balanced fund, the fund manager can easily switch between equity and debt instruments without incurring a tax liability for investors. If an investor decides to switch between funds, he/she would be subject to capital gains tax.
Like all mutual funds, hybrid mutual funds are not completely immune from stock market volatility. Diversification and resource allocation depends on the fund manager and not the investors. You cannot customize the fund on your own.
Balanced mutual funds have better risk-adjusted returns in the long run compared to equity returns.
| Fund Category | 5-year Rolling Return | Risk-Based Standard Deviation |
|---|---|---|
| Balanced funds | 13.20% | 2.9 |
| Large-cap funds | 12.90% | 3.47 |
| Mid-cap and large-cap funds | 13.96% | 3.82 |
| Diversified funds | 14.91% | 3.96 |
