Skip to main content

Balanced Mutual Funds - Mix of equity and debt

Tax Saving Mutual Funds Online

Current open Infra Bond Application form

 

   The stock market has been disappointing investors for the past five years. Market bellwether BSE Sensex has given a 2.74% annualised return amidst bouts of volatility. But what if you had mixed some bonds (or fixed income instruments in market parlance) with your equity investments? Well, you have fared a little better. According to Morningstar India, a mutual fund tracking entity, balanced funds, as a category, delivered an annualised return of 5.02% in the five years ended December 31, 2011, leaving behind large-cap equity funds (3.16%) and small- & mid-cap equity funds' category (2.97%). Does it make sense for an equity investor to invest in balanced funds now? Balanced funds offer a judicious mix of debt and equity. As equities are attractively valued with limited downside and interest rates almost peaking, one can now expect healthy risk-adjusted returns from balanced funds.  


Balanced funds are in India for almost two decades now. According to the Association of Mutual Funds in India, as on November 30, 2011, . 15,457 crore is invested in 30 open-ended balanced funds. Balanced funds, as the name suggests, try to offer an asset allocation tilted a bit towards equity. Typically, these funds invest 65-75% of their corpus in equities and the rest in fixed income instruments.


A young executive at the start of his career who wants to build a portfolio which is primarily invested in equities and rest in quality fixed income instruments can check out balance funds. "Balanced funds make a good portfolio choice for first time investors who are not aware of their risk taking capacity. Another plus point is moving toward an asset allocation or building a portfolio mix of equity and debt. A balanced fund, of course, brings in the right asset allocation. More importantly it brings in discipline in asset allocation that an individual investor may not necessarily have.


Investing in a portfolio that offers both equities and debt works for investors. Though equities offer spectacular long-term returns, they can provide low or even negative returns during an economic downturn. For a first time investor, the fall in value of his equity portfolio may be tough to handle. If his portfolio has got some allocation in debt, the interest income from such investments would offer some cushion. That is why these funds do well in downturns than diversified equity funds. In CY 2008, balanced funds lost 37.88% against a fall of 53.08% in large-cap equity funds and 59.01% in case of mid- and small-cap equity funds.

A similar performance was recorded in CY 2011, when balanced funds lost 13.47% whereas largecap diversified equity funds lost 24.33% and mid- and small-cap funds lost 24.99%.


Most investors have an uneasy relationship with volatility in the stock market. Most of them get attracted to equity in a bull run. But when the market starts going down, they trend to panic. Many of them try to sell their stocks even at a loss to get out of the market. A balance fund could offer some comfort to such investors. Balanced funds are less volatile compared to their diversified equity counterparts. Standard deviation, a statistical measure of volatility, proves the point. Standard deviation (SD) for balance funds in the last five years ending December 31, 2011 stood at 20.47. The SD for largecap diversified equity funds for the same period was 29.65 and 32.46 for small- & mid-cap diversified equity funds. For the uninitiated, lower the standard deviation, less the volatility. The adjoining table makes it clear that the balanced funds were less volatile than their diversified equity counterparts in three- and ten-year time frame too. Put simply, if you have an uneasy relationship with volatility, better stick to balanced funds.

Asset Rebalancing

Most investors know about the importance of asset allocation and rebalancing of assets periodically. However, only a few managed to practice the theory and earn superior risk-adjusted returns. Often investors fall prey to fear or greed and miss the opportunity to act. Balanced funds can be of help here, too. Fund managers have to stick to the asset allocation. Fund managers sell equity as it surges past the prescribed threshold, thus bringing money to safer fixed income. That works in favour of novice investors who need not necessarily understand when to book profits in equity investments. In falling markets, fund managers end up buying more equities, at cheaper prices. Balanced funds thus address the important challenges faced by investors, such as asset allocation and asset rebalancing, and bring discipline in investing.

Should You Buy?

Young investors looking to build a corpus to meet their medium- to long-term financial goals can invest in balanced funds. "The longer you remain invested in a good balanced fund, the better it is for your portfolio. Consider a balanced fund with a minimum one year horizon. Long-term investments in balanced funds also benefit from favourable tax treatment. "As balanced funds invest at least 65% of the money in equity, the fund is treated like an equity fund for purpose of taxation. If the investor remains invested for one year, the gains do not attract tax. It is better to opt for systematic investment plan to invest in balanced fund as most of the money is invested in equity. Sure, some smart folks would want to know why they can't manage two different funds — one equity and one debt. Sure, you can go ahead with the plan, but be prepared to pay higher taxes. Obviously, it will bring down the post-tax returns. The only and most important downside with balanced funds is the possibility of lower returns compared to diversified equity funds in the longer term. But then that would be the sacrifice you would be making for peace of mind.

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. HDFC TaxSaver
  2. ICICI Prudential Tax Plan
  3. DSP BlackRock Tax Saver Fund
  4. Birla Sun Life Tax Relief '96
  5. Reliance Tax Saver (ELSS) Fund
  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

---------------------------------------------

Application form for Tax Saving Infrastructure Bond and more information

Current open Infra Bond Application form

Submit filled up application Collection canter near you

Popular posts from this blog

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now