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 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 novice 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.
I have published an article on ‘ Best Balanced Mutual Funds ’ in 2014. It’s around 2 years back. So, let’s have a re-look at some of the Top and Best Performing Equity Oriented Balanced Funds.
In this post, let us discuss – What are Balanced Funds? What are different types of Balanced Funds? Which are the best Balanced Mutual Funds (equity oriented schemes)? How is the performance of Regular Plans Vs Direct Plans of Balanced Mutual Fund Schemes?
What are Balanced Funds?
Mutual funds are broadly classified as either Equity or Debt, based on where a fund’s corpus is invested.
- Equity funds primarily invest in stocks/shares.
- Debt funds primarily invest in Bonds, Government securities and Fixed interest bearing instruments.
- Whereas, Balanced Mutual Funds invest in both equity and debt instruments.
Types of Balanced Mutual 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).
Top 5 Best Balanced Mutual Funds
As per my last review on Balanced Funds, I have suggested below schemes;
- HDFC Balanced Fund
- TATA Balanced Fund
- HDFC Children’s Gift Fund – Investment Plan
- HDFC Prudence Fund
- ICICI Prudential Balanced Fund
- Reliance Regular Savings Fund – Balanced option
If you have already invested or have active SIPs in any of the above balanced funds, you may continue with your investments. But, kindly note that there are certain drawbacks with Children oriented MF Schemes. So, you may have a re-look at HDFC Children’s Gift Fund. (Read: Children’s Gift Funds – Comparison & Review)
If you are planning to make fresh investment s or SIPs, you may consider below Best Balanced Mutual Fund Schemes.
- There are around 59 Balanced Schemes (source – moneycontrol). The Balanced Fund Category has given an Average Returns of around 13.3% and 8.5% in the last 3 and 5 years respectively.
- TATA Balanced Fund has been one of the best balanced funds for a long-time. The fund has been a consistent performer. The fund has retained a four or five-star rating for the last seven years. The Fund’s strategy has been to allocate a slightly higher equity allocation. The current equity allocation is around 70% of the Fund’s portfolio. The fund’s equity portfolio consists of primarily mid-cap companies. It has HIGH return grade with AVERAGE risk grade.
- HDFC Balanced Fund’s returns and portfolio strategy is similar to that of TATA balanced fund. It also has around 70% equity allocation and has been primarily investing in Mid-cap oriented company shares. However, the fund has slightly reduced its allocation to mid & small cap companies over the last couple of years. The returns from TATA balanced fund & HDFC balanced fund are as good as some of the top performing pure Equity Funds. HDFC Prudence fund is also an another consistent performer from HDFC fund house. However, this fund now has a HIGH risk grade with an AVERAGE return grade. So, given a choice you can prefer HDFC Balanced Fund to HDFC Prudence Fund.
- ICICI Prudential Balanced & Birla Sunlife Balanced ’95 funds have also been performing well. These funds have given returns of around 13.74% & 16.12% in the last 10 years respectively.
- I have replaced Reliance Regular Savings Fund – Balanced option scheme with SBI Magnum Balanced Fund.
- Watch out for lock-in period and Exit Load on HDFC Children’s Gift fund. The investments in this fund have to be made in the name of Children who are below 18 years of age.
- Two more balanced funds to watch out for are L&T Prudence and Franklin India Balanced Funds. Let’s have an eye on their performances.
Balanced Funds : Direct Plans Vs Regular Plans – Returns Comparison
Below table gives you an idea about why investing in Direct plans is beneficial. The returns on Balanced Funds – Direct Plans are higher than the Regular plans. The difference in returns is as high as 1% in most of the cases.
(Read: What are Direct Plans of Mutual Fund Schemes? How to invest in Mutual Fund Direct Plans online?)
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.
- 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.
- You can consider balanced funds for your medium to long-term goals like Retirement Planning or for Kid’s Higher Education goal planning.
Though Equity oriented Balanced funds have low risk profile compared to pure Equity funds, but it does not mean that they are totally risk-free. You may have to remain invested for longer period to get decent returns.
Do you invest in Balanced funds for your medium or long-term financial goals? Kindly share your views / comments.
(References : moneycontrol.com, valueresearchonline.com, morningstar.in & freefincal.com) (Image courtesy of Sira Anamwong at FreeDigitalPhotos.net) (Post Published on : 14-June-2016)