Top Five Balanced Funds

Below is the list of top five balanced funds.

Name of Fund 5 Year Returns (p.a.) Scheme Category
Quant Absolute Fund 17.99.%  Aggressive Hybrid Fund
HDFC Balanced Advantage Fund11.37% Dynamic Asset Allocation
ICICI Prudential Equity & Debt Fund12.78% Aggressive Hybrid Fund
DSP Regular Savings Fund9.22% Conservative Hybrid Fund
Axis Regular Saver Fund9.50% Conservative Hybrid Fund
These funds will give you the growth of equity with the cushion of debt. These funds invest in both equity and debt as per the defined asset allocation.

What do you mean by aggressive hybrid funds?

Aggressive hybrid funds are the type of balanced funds and primarily invest in shares with some allocation to FD like instruments.

Spreading out of funding approach these funds are less volatile than pure equity funds and provide almost equal returns in longer duration.

In this, Up to 65-80% of the total assets invested in equity and equity-related instrument and about

Aggressive hybrid funds are considered as the equity mutual fund schemes for the purpose of taxation.

What do you mean by conservative hybrid funds?

Conservative hybrid funds usually invest in the instruments like government securities, debentures, bonds, FD with some allocation in equity to generate capital appreciation. These funds have higher exposure to debt/bond securities.

As per the norms of SEBI, A conservative fund works under the dynamic ratio of debt and equity investments where 75 -90% of assets employed into debt-related instruments in order to generate consistent income and 10%-25% must be employed into equity to generate capital appreciation.

  • It has Low risk and low return.
  • It has low volatility.
  • It is Ideal for investors who are risk averse with 3+ year investment horizon.
  • Index benefit is available for long term capital gains.

Which one is better – Aggressive or conservative hybrid funds and why?

Investment in the aggressive hybrid funds are good if the investors have a higher risk tolerance level, an appetite of higher returns and a longer time horizon (more than 5 years).

On the other hand, if investors have a lower risk tolerance level, a desire of steady returns that prioritize preserving capital and a shorter time horizon (more than 3 years), then investment in conservative hybrid funds are good for them.

Is it advisable to invest some portion of money in balanced funds?

Yes, it is advisable to invest some portion of money in balanced funds because these funds are automatically spread an investor's money across a variety of types of stocks and debt which reduces the risk of value going down. These funds also allow the investors to withdraw money periodically through STP (Systematic Transfer Plan) without upsetting the asset allocation.

Can a retired person invest in balanced funds?

Yes, a retired person can invest in balanced funds. This provides a dividend option to supplement their post-retirement income and also gives the opportunity to portfolio’s diversification with a low risk level.

Is a balanced fund a good investment option?

The Investment in balanced funds is good or not, can be decided by an investor by keeping in mind the following feature of balanced funds:

  • In these funds, investment entails moderate to high amount of risk.
  • Investment considered on safe side, if it is for at least 3-5 years.
  • These funds are designed to handle diversification of a risk averse investor with perfect balance between risk and returns of investment.
  • These funds are unsuited for tax-shielding investment as they are not tax free when investments are made for short durations. ( Aggressive hybrid funds gains are taxed at 15% and gains from conservative hybrid funds are taxed as per investors tax slab)

Are balanced funds tax free?

Balanced funds are categorized into two categories i.e. Equity oriented and Debt oriented and both have different tax treatment:

Equity-oriented Balanced funds have a larger portion of their corpus (at least 65%) parked in stocks and qualify for the same tax treatment as equity funds. This means the short term capital gains are taxed at 15% and long term capital gains are taxed at 10% above the limit of 100,000 gain in a financial year). However, these funds are more volatile due to the larger allocation to stocks.

Debt-oriented balanced funds are less volatile and good for risk averse investors. However, they offer lower returns. In this, if the investment is held for less than three years, the capital gains counted in short term and taxed at the normal income tax rates. But if the holding period is more than three years, the gains are considered as long term and are taxed at 20% after indexation benefit, which can significantly reduce the tax.

What are BAF (Balanced Advantage Funds)? What are their main features?

According to SEBI, a Balanced Advantage Fund is categorized under the hybrid funds and defined as an open-ended dynamic asset allocation fund. In these funds, the assets of a mutual fund scheme are allocated dynamically based on the market conditions to equity and debt securities.

The fund adjusts its direct equity exposure based on any fluctuations in market whether it is bull or bear market. Therefore, if the market’s price-to-book value ratio is low (based on historical values), the fund raises its direct stock exposure and relies less on arbitrage and vice versa.

Features of balanced advantage funds:

  • It has the flexibility for dynamically shifting the corpus to and from equity/debt.
  • It aims for capital appreciation but also seeks to guard against volatility.
  • This fund is treated as an equity fund for tax purposes.
  • Gives Better Return than Fixed Deposit or Debt Funds.

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