Balanced Funds: Low Risk and Better Returns

Balanced or hybrid funds provide you with the benefit of growth as well as stability. The performance over the past five years has proven that balanced funds are a true companion for investors during market fluctuations. The investment structure of balanced funds is designed in such a way that they are beneficial to investors in all circumstances.
Investors often face situations where it is difficult to decide whether to invest in equity or debt. This is why most financial advisors recommend that novice investors opt for balanced funds for a period of more than five years. Balanced or hybrid funds are also a suitable option for those who are unable to regularly rebalance their investments in equity and debt at regular intervals.

Maintaining the Equity-Debt Ratio

Financial planners recommend balanced funds for investors who plan to invest for at least five years. With balanced funds, investors do not need to go through the hassle of rebalancing the proportion of their investments in equity and debt—this is managed by fund managers. Regular rebalancing ensures that you can profit during bull markets. The objective of rebalancing is to transfer this profit into more secure debt instruments regularly.

Two Types of Balanced Funds

Balanced or hybrid funds come in two types based on their investment structure. Equity hybrid funds invest more than 75% in equities, while debt hybrid funds invest at least 75% in debt. According to financial planner Dhawan, the choice of balanced fund depends on the investor's risk tolerance and investment horizon. For an investment period of three to five years, debt hybrid funds can be a good option.

Better Investment Management

Balanced funds provide investors with the advantage of investing in both stocks and bonds simultaneously and offer options for both growth and dividends. This diversified holding ensures that balanced funds can manage downturns in the stock market without incurring significant losses.

Safer than Pure Equity Funds

The returns from pure equity funds are entirely dependent on the performance of the stocks in which they are invested. In a consistently rising market, pure equity funds perform better than balanced funds. However, during market fluctuations, balanced funds are safer. This is because balanced funds, according to their investment mandate, allocate a portion of their portfolio to high-rated debt instruments. When the stock market declines, the debt investments in balanced funds help limit the reduction in returns.