Investors are always torn between finding the right mix of equity and debt funds for their investment portfolio. But what if we tell you that you can have the best of both of these funds through a single mutual fund scheme? Sounds amazing, right? Enter hybrid funds. In this article, we will explore what are balanced funds, their features, and who should invest in hybrid funds. Let’s begin by understanding what exactly is balanced fund.

What is a balanced fund?

Balanced funds, also known as hybrid funds, are a type of mutual funds that invest their money across different asset classes that includes a mix of stock component, bond component, and a times even a money market component in explicit ratios. As a result, these mutual funds are ideal for individuals who are looking for a mix of decent income, safety, and diffident wealth creation opportunity. Thus, balanced funds help investors to diversify their investment portfolio.

Types of balanced funds

Balanced mutual funds can be classified into the following types according to their allocation in debt and equity funds:

  1. Conservative hybrid funds
  2. Aggressive hybrid funds
  3. Multi-asset allocation fund
  4. Balanced hybrid fund
  5. Dynamic asset allocation fund (DAAF fund) or balanced advantage fund
  6. Equity savings fund

Features of balanced mutual funds

Following are some of the top features of investing in balanced funds:

  1. Hybrid funds help investors to diversify their investment portfolio as the fund is invested across a mix of asset classes – debt funds and equity funds.
  2. As balanced funds invest their assets in a mix of equity and debt securities in a predefined ratio, it decreases the risk appetite of investors.
  3. The fund manager of the hybrid funds has the liberty to adjust the fund’s asset allocation strategy basis the prevalent market conditions.
  4. Hybrid funds are relatively less risky than investing in pure equity funds.
  5. In an event of extreme market fluctuations, balanced funds are designed to mechanically rebalance the portfolio of the investor.

Who should invest in hybrid mutual funds?

Investors who are seeking regular income, safety, and wealth creation opportunities can consider to invest in balanced mutual funds. These mutual funds are ideal for investors that have a low risk profile or someone who is a conservative investor as hybrid funds help investors to maintain a healthy ratio of risk and returns. Hybrid funds often exercise flexible asset allocation strategy based on the prevalent market conditions. Hence, balanced funds hold an edge over equity funds as equity mutual funds follow strict asset allocation rules and these mutual funds cannot exceed the mandated equity exposure norms set by the SEBI (Securities and Exchange Board of India).

The tactical idea behind balanced mutual funds is diversification of the portfolio and asset allocation. Hybrid funds can be ideal for you if you are looking to generate wealth through the equity allocation in balance funds and at the same time wish to diminish the volatility via debt component of the fund. Happy investing!

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