Conservative investors can consider balanced funds when investing for long term...
Balanced funds suit investment needs of slightly conservative investors who are apprehensive of equity markets and want to invest for long-term. These funds invest a large part of their assets in equity (60-80 per cent) and rest in debt. The debt portion helps in limiting the volatility in returns compared to a pure equity fund. Therefore, these funds provide better downside protection, compared to an equity fund, during market downturn. At the same time, investors in balanced funds have to compromise with lesser returns during the market rallies.
Equity funds, on the other hand, are for relatively bold investors willing to take some risk. Even though large-cap equity funds invest in big, stable companies, balanced funds score better in tough times.
Following graph gives a comparative analysis of the category of balanced and equity funds. Balanced fund were less hit during the market downturn of 2008 and 2011; but also returned less in the subsequent rallies.
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