Advantages of a balanced fund every investor should know

It is said that there are two rules to investing. Rule no.1 is to never lose your capital, and rule no.2 is don’t forget rule no.1. Every time one advises you to undertake more risk to get a higher return, join hands before them to never say that again to someone. Successful investment strategies are a must for making investments, and balanced funds are the unsung heroes of stock market investments. The answer to making money successfully in the stock market with minimal risk and good returns lies in a balanced fund. 

Getting a sneak-peek into balanced funds

Simply put, a balanced or hybrid fund is a kind of mutual fund that is a combination of equities (like commodities or stocks) and bonds. Some cases may also entail cash. Investors who have several years to invest before they feel the need to withdraw money from the fund opt for balanced funds. 

That being said, the most common mix of stocks to bonds in a balanced fund is 60% stocks and 40% bonds. Modern times have nonetheless introduced new funds with varied balanced options. 

Suppose you have Rs. 1,00,000 in your portfolio, and the mix is set at 75% stocks and 25% bonds. The allocation would thus be Rs. 75,000 in stocks and Rs. 25,000 in bonds. The fund manager sells few stocks amounting to Rs. 1250 and places them in bonds. Hence, Rs 78,750 (Rs 1,05,000 x 0.75 = 78,750) is in stocks and the remaining amount is in bonds. 

So when the asset class goes up, the funds are sold, and others are purchased. This structured investment carries a lot of flexibility for those willing to make a long-term investment. 

Advantages of balanced funds

The following are some reasons why you should go for balanced funds-

1. Safe for first-time equity investors: Balanced funds can be a great investment idea for first-time equity investors who are continuing to get apprised with the equity market and are usually risk-averse. Since their funds are handled by professionals, the asset allocation mechanism should not be a problem.
2. Convenience follows all the time: Like mutual funds take the guesswork out of selecting individual securities, a balanced fund helps take the guesswork out of dividing an investor’s portfolio among different mutual funds.
3. Tax efficiency: IT law mandates payment of tax on debt instruments. However, balanced funds offer a unique proportion where 35% is invested in debt without any tax on the returns earned on these products.
4. All-season player: Investing in balanced funds will do away with the hassle of determining the opportune time in the market. This scheme finds the right opportunities for investors in any market cycle. An investor who does not have the time or resources to study the market and the investment opportunities can rely on balanced funds to avoid the long-term problem of volatility.

If you desire swift returns, balanced funds investment could be a good idea.