Mutual funds are one of the best instruments you can make use of to multiply your wealth. According to experts, if you want to grow your wealth over time then they are your best bet. In fact, if you compare returns, mutual funds have consistently fared better than traditional modes like fixed deposits and other savings instruments.
However, mutual funds do come with an element of risk. But the good news is that there are some funds whose risk quotient is lower. So you enjoy substantial returns with a lower risk of wealth depreciation. One such fund is the balanced mutual fund.
What is a balanced fund?
A balanced fund invests in a mix of equity and debt related instruments. This is done to minimize the risk while still keeping the returns high. They are not your go-to fund if you are looking for aggressive returns. Generally, most balanced funds put 50% to 70% of their investments into equities while the remaining is invested in bonds and debt instruments.
Even the equity component of a balanced fund is not focused on one particular sector, unlike a sector fund. Depending on the fund’s objective the money is generally invested in a number of sectors like automobiles, pharmaceuticals, real estate etc. This is to lower the risk further while ensuring stable returns.
Advantages of balanced funds
Unlike other mutual funds, balanced funds allow you to diversify your investments. As the fund is professionally managed, you don’t have to sit and analyse various funds. The fund manager will do this for you.
The mix of equity and debt is a blessing for investors, especially first-timers. The equity portion ensures good returns while the debt portions ensure that your wealth is protected from market volatility.
These funds are also tax efficient. The short-term capital gains from these funds are taxed at 15%. However, this will only apply if the said fund is treated as an equity fund. If a balanced fund invests more than 65% in stocks then it will be treated as an equity fund. The short-term capital gains from a debt fund are taxed at 20% with indexation.
Go through the return and the portfolio before investing in a balanced mutual fund. To ensure that you get the most out of it, ensure that you go through the equity capitalization break up, type of debt instruments and the fund’s performance.
mutual fund investment app 