According to the data collected by Association of Mutual Funds in India (AMFI), Assets under Management (AUM) of the Indian Mutual Fund witnessed a huge growth of 42% in FY 2017. In fact, the mutual fund sector witnessed a solid growth and reached Rs. 17.5 lakh crore in 2017 as compared to Rs. 12.3 lakh crore in 2016. This is certainly great news for those who invested in mutual funds. Also, with the investors pumping in around Rs. 3.4 lakh crores in diverse categories, it has further boosted the growth of mutual funds.
Financial companies are offering balanced mutual funds that seek to achieve a balance between risks and returns. Investors who are not keen to be very aggressive with their investments can look at balanced mutual funds as a good option.
Benefits of balanced mutual funds:
With a range of advantages as shown below, balanced mutual funds can be a great wealth creation channel for the middle-class individual who doesn’t want the risks associated with aggressive trading.
- Offers Good Returns on Equity Investment:
If you are among those investors who want to enjoy returns from equity investments coupled with a moderate approach, then balanced funds are ideal. Since this fund is the mixture of equity and debt, it carries low volatility than any other equity fund. Moreover, the return is quite high than debt funds.
- Allocation of Asset:
As mentioned above, this fund has two main asset classes- equity and debt. So, it gives the options to distribute the fund. Moreover, the important job of asset allocation is completely taken care of by a fund manager who ensures optimum allocation so that the mutual fund provides good returns without becoming too risky.
- Tax benefits:
One of the best advantages of balanced funds is the tax efficiency. Funds that invest more than 65% money in stock are treated as equity fund for taxation. And equity funds come with tax implications. But a balanced fund (with less than 65% allocation to equities) held for more than 12 months are exempt from Capital Gains Tax.
Once you get the idea of advantages of this fund, you must also check some of the best balanced mutual funds:
1 – Tata Balanced Fund:
This is the frontrunner of balanced mutual fund category from the past few years. One of the reasons is that the fund keeps equity and debt combination in a mixed ratio of 70-30.
2 – HDFC Balanced Fund:
In the last 5-7 years, this balanced mutual fund has given a great return of 19.24% and has beaten the category returns in 7 out of 10 years. Here the equity portfolio was higher than peers’ allocation, which is around 25-30%.
3 – L&T India Prudence Fund:
Launched in 2011, L&T Indian Prudence Balanced Fund has beaten the category by 3% in the last 5 years. The equity debt mix in this fund is about 70%-30%. Moreover, it carries mid and small cap of around 25% under equity portfolio. This cap has certainly helped in giving a good return of 19.5% in last 5-6 years.
For an investor, the advantage of investing in the balanced mutual fund is high, especially the tax advantage. However, as a smart investor, you need to consult with a mutual fund professional who can advise about the right investment option. In general, professionals would advise for balanced risk profile like 65-70 percent equity and 30-35 percent in debt. But it all boils down to your risk-taking capacity, returns expected, and your wealth creation objectives.