Balanced Fund

Key Takeaways

  • Balanced funds are investment products which invest in a mix of assets, mainly comprising debt and equity
  • Balance funds usually have lower expense ratio as they rarely change the mix of bonds and stocks

What are Balanced Funds?

Balanced funds are investment products that invest in a mix of assets, mainly comprising debt and equity; such funds are often oriented towards one or the other, with a larger share invested in that asset class. Balanced funds are also called asset allocation funds.

Balanced funds, as the name suggests, offer a balanced approach to investing in markets as they strive to mitigate risk with a debt portion, along with a moderate appreciation of capital through equities. The aim is to safeguard the investor’s capital to a larger degree than adventurous equity funds.

Balanced funds are taxed according to the major asset class in the fund. One with an equity orientation (at least with 65 percent) will be taxed like an equity Mutual Funds.

Balanced funds are a type of hybrid funds. Hybrid funds are investments made into two or more diversified asset classes.

Advantages of Balanced Funds

Balance funds usually have lower expense ratios as they rarely change the mix of bonds and stocks. Since these funds are spread into a variety of stocks, they minimize the risk for the investors. All the benefits of a balanced fund are:

· Diversified portfolio

· Constantly rebalanced portfolio

· Low expense ratio

· Low risk

· Little volatility

Disadvantages of Balanced funds

The downside of balanced funds is the funds look over and control the asset allocation, not the investor. The asset allocation done by the fund might not always align with the investor’s tax planning moves. The disadvantages of balanced funds can be summarized as:

· Pre-decided asset allocation

· Returns are safe but stodgy 

· Might not align with the tax-shielding strategies