Types of Balanced Mutual Funds in India
Welcome readers! After receiving a tremendous response on my last post regarding Best Mutual Fund Investment for 2018 today I am prompted to write a new post on Types of Balanced Mutual Funds in India.Before, jumping straight into this topic, first, we must know What is a Balance Mutual Mutual Fund.
Balanced Mutual Fund
A balanced Mutual Fund is a fund where investment is made predominantly in both equity and debts instruments.As a standard practice a fund to be termed as balanced, it must have inherent investments in both the equities and debts products.Therefore, a balanced mutual fund contains the nice flavor of equity as well as debts in a single fund.
Types of Balanced Mutual Funds in India
Basically, there are two types of balanced mutual funds in India.One is equity-oriented balanced fund and another one is debt-oriented balanced fund.
Equity-oriented balanced mutual fund: In equity-oriented balanced fund there is a minimum 65% exposure(investments) in equities and 25% to 35% in debt instruments like Treasury bonds, Corporate securities, Money market instruments and etc. So, the basic criteria is it must have minimum 65% investments in stocks. For taxation purpose, this fund is treated as equity mutual fund like if held for more than 12 months, Long Term Capital Gain (LTCG) will be applicable and Short Term Capital Gain if held for less than 12 months.
Debt-oriented balanced mutual fund: In case of debt-oriented mutual funds there is a minimum 35% investment in debt instruments like Treasury bonds, Corporate securities, Money market instruments and etc. In other words, if the equity exposure or investment falls below 65% in a balanced fund it will be termed as Debt oriented balanced fund. For taxation purpose, this fund is treated as debt mutual fund like if held for more than 36 months, Long Term Capital Gain (LTCG)@20% will be applicable and Short Term Capital Gain@15% if held for less than 36 months.Debt oriented balanced fund also enjoys indexation benefits at 20% LTCG.
The effective tax rate becomes 6% to 7% when held for more than 5 years with the indexed cost of acquisition.STCG is applicable as per applicable income tax slab.
Advantages of Balanced fund:
- Since a balanced mutual fund invests both in equity and debt products, it gets the benefits of diversification within the fund itself;
- Low risk or volatility due to lesser portfolio churn out or rebalancing;
- Lower expense ratio;
- A balanced fund is considered as a good investment option when there is a high Inflation in the economy.
- Suitable for low risk appetite investors and retired persons;
- Safe for investors who want regular income along with growth of the fund;
Disadvantages of Balanced fund:
- Not suitable for short-term investment period say for 3 to 5 years;
- A debt-oriented balanced fund cannot beat the equity-oriented balanced fund in terms of return ;
- Low risk does not mean that this fund is risk-free.This balanced fund has got some degree of risk associated with this as well.
Best 3 balanced mutual fund to invest in 2018 in India:
Currently, there are numerous balanced funds which are selling in India.Today I will just discuss the name of 3 best balanced mutual funds for easy reference.I will publish a separate detailed post on this topic later.
1.HDFC Balanced fund.
2.ICICI Pru Balanced Fund.
3.L&T Prudence Fund.
Don’t go for equity or debt oriented balanced fund blindly for investment.If the investment of a balanced fund is solely focused on mid and small cap fund, rather you should go for a fund which has more exposure to large cap funds.If your investment horizon is more than 7 to 10 years, I would personally suggest you go for a pure equity mutual fund.Ideally, a balanced fund is suitable for low or moderate risk appetite investors.
Hope, I have done justice to the topic Types of Balanced Mutual Funds in India relatively. I have put my best efforts to make this topic as easy as possible so that everyone can understand.