Are you working hard to keep everything in your life BALANCED? I am sure, who does not want to lead a balanced life.. Staying balanced in the midst of your life is a true feat.
A well balanced life is very much essential for personal effectiveness, peace of mind and living well. We all would like to maintain a balance between professional and personal life. Both are equally important to lead a successful, happy and healthier life. We need to have a right and well-balanced diet to be healthy and fit.
Investing in Balanced Mutual Funds is not much different. Balanced funds are also known as Hybrid Mutual Funds. Personally I prefer investing in balanced funds to achieve my medium and long-term goals. I am a strong advocate of Balanced Funds. (Read : My Mutual Fund Portfolio)
Whether you are a new or an experienced investor, investing in balanced funds can be fruitful. They can give you Diversified Equity funds like Returns but with a lower risk profile.
Last year in the month of June (2016), I had published an article on ‘ Best Balanced Mutual Fund Schemes ’. One year gone by, so let’s review the performance of these top performing balanced funds and let’s have a look at the new list. But, before that, let’s discuss on the basics of Balanced Funds.
What are Balanced (or) Hybrid Mutual Funds?
Mutual funds are broadly classified as either Equity or Debt,based on where the funds are invested.
- Equity funds primarily invest in stocks/shares.
- Debt funds primarily invest in Bonds, Government securities and Fixed interest bearing instruments. (Related reading : ‘Types of Debt Funds‘)
- BALANCED FUNDS invest in both equity and debt instruments.
What are different types of Balanced Funds?
Balanced mutual funds can be Equity oriented or Debt oriented hybrid plans.
If the average equity exposure of a balanced fund is more than 60% and the remaining 40% is in debt products then it is treated as an Equity Oriented Balanced Fund. This means major portion of the fund’s assets are invested in equity (stocks).
If the average debt exposure is around 60% and equity is 40% then these funds are treated as Balanced funds – Debt oriented. (These proportions can vary among different balanced fund schemes).
As per my last review on Top performing Balanced Funds, I had earlier suggested below schemes ;
- HDFC Balanced Fund
- TATA Balanced Fund
- ICICI Prudential Balanced Fund
- Birla Sun life Balanced ’95 Fund
- SBI Magnum Balanced Fund
- HDFC Children’s Gift Fund
As HDFC Children’s Gift Fund may not be suitable to everyone, so I have included a regular balanced fund in its place, which is L&T Prudence. (Last year, I have suggested to keep an eye on L&T Prudence’s performance.)
If you have invested in any of the above Funds, you may continue with your investments in them.
Top Performing & Best Balanced Mutual Fund Schemes & Returns Analysis
Below are the top and consistent performances under Balanced (Equity oriented) category ;
- There are around 61 Balanced (Equity oriented) Schemes. The Category’s average returns have been around 12% for the last 5 years.
- HDFC Balanced fund has been one of the best consistent performer under ‘Hybrid-Equity’ fund category. The fund’s last ten year record is as good as some of the best pure Equity funds. This fund generally allocates 70% of its corpus to Equities and the remaining balance is invested in Debt Securities. The fund’s investment strategy has been aggressive when it comes to allocation of corpus to mid/small stocks, when compared to its peers. This fund has a very low portfolio turnover (Portfolio turnover is a measure of how frequently assets within a fund are bought and sold by the managers). The last 5 and 10 year returns are 19% and 16% respectively.
- Birla Sunlife’s Balanced Fund (’95) is one of the oldest available balanced funds and has also been a consistent performer. This fund has an allocation of around 71% (May 2017) of its corpus to Equities and around 19% has been invested in Debt oriented securities. Around 23% of its Equity allocation has been invested in Banking & Financial Services sector.
- L&T Prudence Fund, though relatively a new entrant in this category, it has been performing really well for the last few years or so. It has beaten its benchmark and peers by impressive margins over the last four years. The Fund’s risk grade is ‘below average’ and return grade is ‘above average’. It has an allocation of around 69% to Equities. The fund’s investment strategy has been a ‘multi-cap’ approach with slightly higher allocation to Mid/small cap stocks. Whereas, it does not take much risk with Debt securities and primarily allocates debt corpus to less risky bets like Sovereign Debt, Bonds & Treasury investments. We need to see how this fund performs in a bear market (as this fund has been launched in 2011 only).
- ICICI Prudential Balanced Fund has an Equity allocation of around 65% and around 28% of its corpus is invested in Debt securities. Its performance during the last 5 year period has been quite impressive.
- SBI Magnum Balanced Fund has been inconsistent until 2011 (with patches of bad and good performances). However, this fund has been performing well since 2011-12. This fund typically maintains a 75-25 equity-debt mix. The equity part is multi-cap, with 50% allocation to Large cap stocks and 50% allocation to mid/small cap stocks. In the Debt portion, about 50% is invested in G-Secs.
- TATA Balanced fund has been one of the star performers under Balanced Funds category. However, its performance has not been up to the mark for the last 1-2 years. The fund’s three and five year returns have beaten its benchmark by around 10% and its category by 5% points. But the margin of out-performance has narrowed in the last 1 -2 years. Its standard deviation has been slowly inching higher. Nevertheless, it is still one of the best consistent performers for the last 10 years or so. Its 10 year returns have been around 14%, next best to HDFC Balanced fund.
- Two more balanced funds to watch out for are Franklin India Balanced Fund & DSP Blackrock Balanced Fund. Let’s keep a track of their performances.
Best Equity Oriented Balanced Mutual Fund Schemes & Risk Ratios
Let’s have a look at the Risk ratios of these top performing & best Balanced Mutual Fund Schemes; 
(Sorted based on overall ‘Fund Risk Grade’) (Source : Valueresearchonline.com)
In case, you have to pick a balanced fund out of these top performing balanced funds as per your requirements, you need to give importance to both returns and measures of volatility. You may analyze various ratios as given in the above image and select the one which is the best for you.
Ideally, the fund should have lower Standard Deviation, low Beta, high Alpha and so on..
Suggest you to kindly go through my article ‘how to pick right mutual fund scheme?‘ for the detailed explanation on various types of risk ratios.
The main benefits of investing in a balanced fund are;
- Diversification : The funds are invested in both equity and debt financial securities leading to diversification of investments.
- Asset Allocation & Re-balance : Balanced funds regularly re-balance the portfolio based on market conditions & asset allocation limits. An investor is, thus, saved the hassle of manually re-balancing the portfolio. But it is prudent not to remain invested in these funds till your reach your Financial Goal target year. You may have to switch to safer investment avenues as you reach your target year. (Related reading : ‘List of best Investment Options‘)
- Low volatility : Balanced funds are less risky compared to pure Equity funds. Equity portion will provide the capital appreciation through stock prices appreciation and dividend income. Whereas, Debt portion can provide stability through interest income and appreciation in Bond prices.
- Long Term Capital Gains : In terms of taxation, the balanced mutual funds that invest at least 65% in equity (Equity oriented) attract no tax liability on Long Term Capital Gains. The units of these funds should be held for more than 12 months. (Related Reading : ‘Capital Gains on Mutual Fund & Tax implications‘)
- You can consider balanced funds for your medium to long-term goals like Retirement Planning or for Kid’s Higher Education goal planning.
Have you invested in any of the balanced mutual fund schemes? Do you believe that one should include a balanced fund in his/her long term MF portfolio? Kindly share your views. Cheers!
(References : moneycontrol.com, valueresearchonline.com, morningstar.in & freefincal.com) (Post Published on : 19-June-2017)
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Hi Sreekanth,
Thanks for the suggestions on the funds. Last year I have invested in HDFC Balanced fund after reading your article and I found it is good choice.
Hello Sreekanth,
I have recently come across your blog and I find it pretty useful for personal finance planning. Thanks for creating this blog.
I have a quick question not sure if this is the right platform to ask. Actually I am new to Mutual Funds but I would like to invest in some. I want to invest about 5 Lacs amount in some reliable investment with good returns. Is there any MF which can give me monthly income if I invest some lumsum amount ? Please let me know.
Thanks in advance. Waiting to hear from you.
Dear Manju ..Thank you for your appreciation!
May I know your investment time-frame?
Suggested reading : Best Monthly Income Plans of Mutual funds.
Hi Sreekanth,
Thanks for your quick reply. I shall go through the suggested article and get back to you. Bye for now..
Nice article and I hav recently invested in HDFC balanced fund. Balanced funds are best especially when market crashes and the amount lost is less compared to other funds. Returns are pretty good especially in the longer run!
Dear Srikanth,
I am having home loan for 25 lakhs for 10 years period. 3 years emi payment completed. Now I am getting 10 L as lump sum from a sale proceed. Shall I pay this amount for my Home loan or shall I invest in equity mf. As home loan interest is less compare to MF returns (Say if I get 12% PA in equity which is more than my Home Loan Interest 8.6%)
Could you please advice.
Dear Harinath,
May I know your other important Financial goals and their time-frames?
Have you been adequately investing/saving for these goals?
I am having 5 financial goals. Two Children aged 12 years & 6 years old for their education & marriage. And my retirement after 15 years. I think all are long term goals (more than 10 years) only except first child Education expenditure after 5 years.
At present I am having total 30 L investments in MF. Some MF I invested are suggested by you in 2015.
I am having family floater health insurance & term policy.
My only liability is Housing Loan. Also this will not serve my tax benefits.
Thanks in advance for your prompt reply & guidance.
Dear Harinath,
Based on your profile, financial goals and current investments, suggest you not to pre-pay your home loan with a lump sum amount.
Instead, you may invest this corpus for your long term goals (especially for Kid’s education & your retirement).
Also, the home loan rates are reasonable, may remain so for atleast fr next couple of years…
I would suggest to prepay a portion to assuage our anxieties as this would definitely be nagging the conscience now and then. A peace of mind is an intangible benefit. Also the interest burden would come down.
This is really a very good article, Blogs are not just for socializing with others but it can also give us useful information like this. I really love your post, thanks for sharing this and looking forward to seeingfrom you more .
L&T India Prudence NAV has increased by 16% in last 10 months, HDFC Balanced is also close to it. Thanks for the review of Balanced Funds.
I am a follower of your blog from the past 6 months.your every article is very informative and trustworthy.I inspired by reading your posts.I need your advice regarding an investment strategy for my father(age 60) who is retired school teacher wants to park Rs 10 lakh at ICICI pru balanced Growth fund and starts a SWP of 10k every month from the 2nd year to fulfill the monthly expenses.Is it advisable to go ahead with this plan?
Dear Anindya,
May I know if he is going to be totally dependent on this income?
Can he afford to take risk by investing in an equity oriented scheme?
By the by, SWP is a good strategy
First of all thanks for your reply.
1.No this is for additional monthly income along with the monthly pension.
2.Though it is not purely equity so if he stay invested for 10+ years will not the risk will be minimized?
your advice regarding this will be highly beneficial for us. kindly respond with your valuable reply.
Dear ANINDYA,
If one invests Rs 10 Lakh assuming 10% return (on equity balanced funds), and withdraw Rs 10k per month then the accumulation can be Rs 6.5 Lakh after 10 years.
If he understands the risks associated with equity funds, you may suggest him to invest in balanced fund(s) and set-up SWP.
Also, any gains made after 12 months are tax-free.
May I know if he has adequate Health insurance cover?
Thanks for your valuable feedback.
By the way he has no health insurance cover.
Dear Anindya.. You may suggest him to take a health cover at the earliest.
Suggested readings :
Health insurance plans for Parents / Senior Citizens.
Important factors that need to be considered when buying a health insurance policy
Best portals to compare health insurance plans
You are really a wholehearted fellow.The way of your guidance is truly admirable.I wish you a good luck for ReLakhs.com.
Thank you, do share the articles with your friends and kindly keep visiting ReLakhs!
Hi Sreekanth, another nice article from your side.
I have 2 questions here:
1. As market is touching new highs every other day, do you think that it is wise to invest in equity oriented balanced funds. Balance funds invest in small/mid cap stocks as well. Don’t you think that large cap or debt oriented balance funds are better choice in today’s market scenario. My investment h0rizon is 5-10 years.
2. I have ICICI balanced fund in my portfolio. But its NAV is around 120+. Don’t you think it is wise to invest in some other balanced fund having low NAV. Suppose if i invest 1000 in a month and NAV is 100, i would be able to purchase only 10 units but if NAV is 50, i will be able to purchase 20 units. I am sorry if my question is very silly.
Thanks
NAV value and number of units do not matter when you are comparing 2 funds. If both the funds go up by 10%, you will have exact same notional profit in both – provided you have invested same amount in both.
Thanks for your response.
@Sreekanth, your inputs please for both queries.
Dear Saurabh,
1 – As you have long term investment horizon, advisable to invest as much as possible in Equity oriented funds. Your time-frame and investment objective(s) are more important that current market conditions.
2 – It is a misconception. Dont go by quantum of NAV. As opined by cvan..its the % of appreciation which matters.
1) both strategy is fine as long as it fullfil your asset allocation. Have said that for 5-10 year, if you can take little risk balance fund/large cap may fetch better return than debit fund post tax.
I want to invest 5 lacs in hdfc balanced via STP. So i decided to invest 500k in hdfc liquid fund and choose stp of 10k every month. So the cycle will continue for 4.2years for 10k as 50 STP installments. But as i read on your blog liquid funds short term fund so is my way is correct??
Short term fund means you need the money back pretty soon (for your expenses, investment etc.). So, obviously you want to put it in something that is not so volatile, liquid, has less risk of loss, preserves capital and does not lose out to inflation too much.
In my perspective, what you have done is fine.
Because think of the alternatives. If you had put that into a longer term income bond fund that goes down by 5% every time there is a 1% increase in the interest rate, now suddenly you are looking at a fund of 450k to STP from rather than 500k. It will probably come back up to 500k but after a significant amount of time.
On the other hand you can just keep the money in savings account and keep it safe with 4% interest only. However, now you are losing out on probably 1-2% additional income (and to inflation) that you could have got from liquid. In your case that is almost 5-10k. And liquid fund may just drop 0.2-0.3% or so (for example) for every 1% increase in interest rate. And it will very quickly recover too.
Thank you cVan for sharing your insights. Agree with you.
What is your opinion about canara robeco balanced fund?
Dear Cvan..Have you already invested in this fund (or) planning to invest?
I have invested some amount sometime back but also planning to start an SIP on it.
Dear Cvan.. If you are starting fresh SIPs, may be advisable to make future investments in some other balanced fund.
Thanks, will keep that in mind. I wanted to diversify a bit as the other premier balanced funds mostly invest in large caps. CR seems to have picked quite a few good small caps.
Dear cvan..The fund has invested around 20% of its corpus in Debt securities, as per Valueresearch data, the debt portion falls under ‘Low’ quality and ‘high’ interest rate sensitivity block, you may have a look.
Nice Article Srikanth
Thank you dear Suresh!
Sir
I want portfolio management like am investing 8000 per month in SIP
SBI CONTRA -2000
SBI MAGNUM GF-1000
SBI PSU -1500
L&T MIDCAP -3000
RELIANCE mf -500
I wanted to know whether this is right investment
My age is 34 and married with a kid of 3 years
Dear Deepak,
May I know your investment time-frame?
Can you expand the scheme names of 2nd & 5th funds?
Thanks Srikanth.This article is refreshing and timely.As market is forming new highs daily,most of the stocks and mutual funds have become expensive.Best time to invest in balance funds.
Thank you Doctor Ji !
Any time is a good time to invest, based on ones Financial Goals !