Balanced Mutual Funds in India


Balanced funds, also known as hybrid funds, are a combination of both debt and equity funds.

Balanced funds are a good option for those who plan to add a good diversification in their portfolio.

 Mutual funds are gaining a lot of popularity as a long-term investment instrument, especially in the last decade. The most appealing feature of mutual funds is that it offers different types of funds, and investors can choose any of them based on their financial objectives. Balanced or Hybrid funds are a mutual fund type in which your investment takes place in a collection of assets. Balanced funds offer maximum diversification and assured returns to investors by investing in both equities and debt instruments. Read this article to know more about the balanced mutual funds in India.

What are balanced mutual funds in India?

Balanced funds, also known as hybrid funds, are a combination of both debt and equity funds. In simple words, it invests in a mix of debt and equity instruments. Compared to pure equity funds, these funds carry relatively fewer risks. Investors tend to buy at highs, and they used to sell at lows, which can lead them to losses. They can achieve maximum diversification by adding balanced funds in their mutual fund portfolio. You can choose a balanced fund based on your investment objective and risk preferences. It is an ideal option for first-time mutual fund investors because around 65%-75% of its corpus invests in equity, and the rest of the corpus gets exposure to debt instruments.

Features of Balanced funds

Acquire wealth appreciation in the long run and generate returns in the short-run is the main aim of investing in balanced funds. Diversification is a prime feature of such funds, and the fund managers diversify your investment to get capital appreciation by investing in equity, and for stable returns by allocating the corpus in debt instruments. They buy or sell securities based on market movements to take advantage of them. Here are the best features of balanced mutual funds.

Diversification: Diversification is the most attractive feature of balanced mutual funds. As said above, these funds are a mix of both debt and equity funds offer assured returns to investors. By spreading the investments, balanced funds carry minimum risks compared to investing in pure equity funds. The debt component of balanced funds offers both stability and capital appreciation.

Rebalancing: An investor may get confused about investing the corpus into both debt and equity classes. But in balanced funds, an efficient fund manager does rebalancing of the fund regularly to ensure its equity allocation at the best level. He tries to allocate the equity at 65% or more than to make it a high-quality product.

Taxation:  Equity mutual funds are eligible for taxation only if at least 65% of it invests in stocks. In balanced mutual funds, it is necessary to invest 40-60% in debt or equity, and if it is less than 65%, it is treated as debt schemes for taxation. The capital gains from these funds are calculated separately based on the fund orientation. Equity-oriented balanced funds are taxed like equity funds, whereas, the debt component of such funds is taxed similar to the taxation of debt funds.

The capital gains that you acquired after holding your investment for more than one year is treated as long-term capital gains and taxed at the rate of 10% if it is more than 1 lakh without any indexation benefits. The short-term capital gains from balanced mutual funds are taxed at the rate of 15% on its equity component. The long-term capital gains from the debt component of a balanced fund are taxed at the rate of 10% without the benefit of indexation and 20% after indexation, whereas the short-term capital gains from its debt component are added to the total income of the investor and taxed as per the income tax slab.

Different types of balanced funds

Hybrid funds are relatively safe investment plans and offer assured returns. Based on the asset allocation, balanced funds are classified into different types. Following are the different types of balanced funds:

  • Equity-oriented hybrid mutual funds
  • Debt -oriented balanced mutual funds
  • Balanced funds
  • Arbitrage funds
  • Monthly income plans

Balanced funds are a good option for those who plan to add a good diversification in their portfolio. Since balanced funds allocate their corpus between both debt and equity classes, these are a safe bet that offers assured returns. Asset allocation, portfolio diversification, and efficient risk management are the key factors that appeal to investors to balanced funds.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh