Balanced Mutual Funds
- Mix Portfolios inclusive of Equity, Debt and Money Market
- Tax efficiency for investors with Long-Term Horizon
- Regular Rebalancing for High-Returns
- Handpicked Funds based on past performance/li>
- Generation and Appreciation of Capital
Best Balanced Mutual Funds in India
Here are the top performing balanced funds/ hybrid mutual fund schemes in India:
| Balanced Mutual Fund Name | 3-Year returns | 5-Year Returns |
|---|---|---|
| HDFC Hybrid Equity Fund | 13.46% | 15.49% |
| ICICI Prudential Equity and Debt Fund | 13.01% | 15.31% |
| SBI Equity Hybrid Fund | 12.88% | 16.32% |
| Reliance Equity Hybrid Fund | 12.82% | 15.85% |
| Aditya Birla Sun Life Equity Hybrid ‘95 | 13.54% | 15.69% |
| ICICI Prudential Balanced Advantage Fund | 10.58% | 12.41% |
What are Balanced Funds?
Investments in mutual funds are all about a diverse portfolio of contribution towards various financial instruments. Balanced mutual funds also known as hybrid mutual funds are one of those mutual fund schemes which help you do a portfolio diversification. This type of mutual fund scheme allows for capital appreciation, generation of income in addition to risk minimization. Balanced funds in their basic essence are seeking to generate capital shielding the investments from unstable and unforeseen market ups and downs.
Balanced/ Hybrid Funds have been touted to provide a one-stop investment diversification via investment in a mix of equity instruments, as well as, debt instruments. The best hybrid funds in India, generally have a 50-70% investment in equity schemes and the remaining in instruments such as bond and debt markets. Thus, they are also more commonly known as equity hybrid funds. This fund is ideal for investors who have a low-moderate risk appetite but are also looking towards significant returns.
In many ways, the best balanced mutual funds bear a resemblance to the income funds, differing only in the fact that these schemes are invested in many non-debt instruments such as common stock, preferred stock, extending even into real estate at some times. Typically, even after being somewhat conservative in nature, the balanced/ hybrid mutual funds have shown a higher rate of return in comparison to some of the more conservative instruments in the market such as bond funds, money market etc.
Should I Invest in Hybrid Funds?
In order to make an investment in any particular scheme or fund, you should ascertain whether or not that type of mutual fund scheme will be best suited for you. Here are some pointers for who all can invest in a balanced/ hybrid scheme mutual fund.
New Investors
If you are thinking about your very first mutual fund investments, you should consider these equity-linked schemes (ELSS) due to tax deductions and the benefits they offer to the investor. In addition to the tax benefits of these schemes, the hybrid mutual funds present the perfect option of portfolio diversification for first-time investors. This essentially means that the investors can witness the growth of their investment over time while keeping their principal amount invested protected by the provisions of the scheme.
Conservative Investors
The hybrid/ balanced mutual funds are one of the most stable and safe investment venues for people who are looking to create long term safe haven investment instruments for example retired people. Conservative Investors find balanced funds most suited to their profile since they allow for an investment in a balanced strategy which helps them get desirable outputs irrespective of the market position.
Investors wanting better returns than Debt Market
Debt Mutual Funds have been known to provide returns of around 10% on average. Some investors who have already invested in debt funds are not that risk-averse anymore and want to earn higher returns can go for these funds.
Types of Balanced Funds
The balanced funds/ hybrid funds are mainly of two types :
Equity Oriented Balanced Funds
As the name suggests, equity-oriented balanced funds are essentially those where the major amount of capital is invested towards equities and the derivatives of such equities. The capital appreciation/growth of the investment in the equity oriented scheme is aggressive as the major part of the portfolio is in equities, which can be highly volatile owing to market conditions. The risk factor associated with the equity-oriented balanced funds is relatively lower even though they provide returns similar to those of regular equity mutual fund schemes. This is due to the diversification in the portfolio into debt instruments which help make the investment less volatile as a whole.
Debt Oriented Balanced Funds
Like Equity-oriented hybrid funds are geared to invest a major share of the portfolio towards the equity schemes, the debt-oriented balanced funds invest with a focus on the debt and money market instruments. Thes funds have a relatively lower risk factor associated with them and they should serve as perfect investment avenues for conservative investors. These hybrid funds stand to provide consistent long-term returns. The equity share of these types of funds can help capitalize on the increasing share of the equity capital markets side by side protecting the debt instruments from inflationary and interest rate risks.
Advantages and Disadvantages of Balanced Funds
Before you go ahead and invest in a hybrid mutual fund scheme, it is pivotal that you look at all the aspects of this type of fund in order to make an informed decision. Let’s look at some advantages and disadvantages of this mutual fund scheme.
Advantages
The balanced/ hybrid mutual funds present an investor with the provision of efficient portfolio diversification under one scheme. The investor thus is saved the hassle of selecting from, and analyzing a bouquet of funds, as this job will now be handled by a fund manager. The balanced funds consist of an efficiently and tactically selected combination of debt and equity components which make the fund less vulnerable to market fluctuations and volatility. Equity Components can help with the appreciation of the capital while the debt components of the fund provide stability to the fund returns against volatility.
Disadvantages
Sometimes, due to their inherent stability balanced mutual funds might appear to be completely risk-free however, that is far from the case. If a direct hybrid fund investment has been made across many stocks and many debt instruments the relocation of resources can be done to gain better returns. However, this decision os asset relocation is out of your hands as an investor and is completely in the jurisdiction of the fund manager and how he sees it fit for all the investors of the fund.
Taxation of Balanced Funds
- Equity-Oriented Balanced Funds Taxation
The taxation laws dictate that the mutual fund investments with equity exposure in the excess of 65% and more qualify for an equity asset class. If the assets are held for less than a time period of 12 months they will be considered as short-term investments and will be eligible for Short Term Capital Gains tax which is 15% If the assets are held for more than a time period of 12 months or greater, a Long Term Capital Gains Tax is applied owing to 10% , if the investor stands to gain ₹ 1 lakh or more.
- Debt Oriented Balanced Funds Taxation
For the purposes of taxation, the debt-oriented balanced funds have been clubbed under the category of debt funds. In accordance with the same, Long Term Capital Gans Tax starts to apply if the funds have been held for more than a time frame of 36 months. The Short Term Capital Gains Tax is applicable according to the slab rate of the concerned individual. If the units are redeemed or switched after a time period of 36 months which is taxed at a 20% rate.
Risk-Adjusted Returns
Thus, balanced mutual funds have been adjudged to be one of the most well-rounded, diverse and safe mutual fund schemes available in today’s investment market. This not just purely theoretical but the risk-adjusted returns of these funds in comparison with some of the other funds in the market is a clear indication of their good performance.
| 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 |
Therefore, the balanced mutual funds have provided investors with a stable, low risk and yet high revenue/return avenue which can give an immense portfolio diversification to an investor.