Should You Buy Balanced Mutual Funds in India?

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If you are on a moderate to low-risk profile then you can prefer buying balanced mutual funds in India. The debt portion shields your money from market volatility while the equity component helps in generating good returns.

In this article, we will cover if Balanced funds are the right fund type for you.

We will first discuss what are balanced funds, advantages and disadvantages of balanced funds, and then finally some examples of balanced funds with their historical performance.

Should I buy Balanced Mutual Funds in India?

What are Balanced Mutual Funds?

A balanced mutual fund is a fund that contains a stock component, a bond component, and sometimes a money market component in a single portfolio.

Generally, these funds stick to a relatively fixed mix of stocks and bonds. Balanced mutual funds have holdings that are balanced between equity and debt, with their objective somewhere between growth and income.

This leads to the name “balanced mutual fund”

Balanced mutual funds are geared toward investors who are looking for a mixture of safety, income, and modest capital appreciation.

Balanced funds invest with the goal of both income and capital appreciation. Balanced funds are good for conservative investors looking to outpace inflation.

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Also read: Different types of mutual funds

Balanced Mutual Funds Advantages and Disadvantages

Listed below are a few of the balanced mutual funds advantages and disadvantages.

3 Advantages of Balanced Funds

Risk Reduction

One of the biggest advantages of buying balanced mutual funds is that they reduce the risks in your investments by balancing the exposure towards equity and debt components.

Automatic Rebalancing of Funds

When the equity market becomes risky, the fund manager can choose to reduce the equity exposure by booking some profits and investing in debt instruments.

On the contrary, when the equity market looks reasonably priced, the fund manager can increase the equity exposure in order to fetch more returns.

Diversification of Investment Portfolio

The fund manager diversifies the investments across good-rated debt papers as well as quality equities.

These balanced mutual funds can be a great investment instrument for naive investors who do not understand equity investing much and are usually highly risk-averse.

3 Disadvantages of Balanced Mutual Funds

Listed below are the 3 disadvantages of balanced mutual funds in India.

They are not Risk-Free

Many investors have the myth that balanced mutual funds are risk-free. Well, they are not really. The equity component of the balanced fund gives market-related return which is volatile in nature.

The debt portion return depends on the quality of the debt papers being bought by the fund manager.

Returns Lag the Available Equity Funds

Usually, the balanced mutual funds have an exposure of 65%-35% exposure towards equity and debt components. The 35% debt exposure reduces the market-related returns.

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And this makes the balance mutual fund perform less than the pure equity-based funds.

No Control over Decision Making

Well, the sole decision-making lies with the fund manager of the fund. As a result, the investor has no say in reducing or increasing the equity or debt portion as per the understanding.

The decision lies only with the fund manager.

Types of Balanced Mutual Funds in India

Conservative Hybrid Fund

Conservative Hybrid Fund would invest 10-25 percent in equities and 75-90 percent in debt instruments.

These funds are suitable for those who cannot withstand too much volatility in the value of their investments and are content with moderate returns which are slightly higher than returns from fixed income options.

They may also suit those looking for a regular income from their accumulation. The debt portion of these funds provide a moderate, but steady stream of income.

The small equity allocation though adds a bit of volatility but helps boost returns to keep up with the rate of inflation over the long term.

Examples of Hybrid Balanced Mutual Funds in India

One-time investment return (absolute)

Period (Returns in %) 1 Year 3 Year 5 Year 10 Year
Canara Robeco Conservative Hybrid Fund  23.08% 33.53% 53.48% 136.80%
SBI Debt Hybrid Fund 27.52% 26.09% 50.20% 138.72%
HDFC Hybrid Debt Fund 25.72% 25.35% 51.41% 134.85%
Kotak Debt Hybrid Fund  28.19% 30.37% 57.95% 146.27%

(Source- moneycontrol, as of 26 March 2021)

Aggressive Hybrid Funds/Balanced Mutual Funds in India

65-80 percent of our money in equity shares and the rest in bonds. Their returns are slightly lower than those of pure equity funds which invest all your money in shares, but they also fall relatively less when the stock markets decline.

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This makes them suitable for equity investors or first-time equity investors who are not used to sharp ups and downs.

Examples of Aggressive Hybrid Balanced Funds

One-time investment return (absolute)

Period (Returns in %) 1 Year 3 Year 5 Year 10 Year
Principal Hybrid Equity Fund – Regular – Growth 52.32% 26.68% 88.66% 209.09%
Mirae Asset Hybrid Equity Fund – Regular – Growth 54.52% 41.52% 89.56%
Canara Robeco Equity Hybrid Fund – Regular – Growth 48.85% 44.70% 92.35% 248.21%
HDFC Hybrid Equity Fund – Regular – Growth 61.57% 28.50% 73.91% 134.06%

(Source- moneycontrol, as of 26 March 2021)

Dynamic Asset Allocation/Balanced Advantage Funds

This type of fund invests your money in equity shares and bonds through their proportions are not fixed.

The fund management team may increase or decrease the allocation to equity shares depending upon their market outlook.

These funds tend to fall less than pure equity funds when the stock markets decline because of their debt allocation. This makes them suitable for conservative equity investors.

Examples of Dynamic Asset Allocation Balanced Funds

Period (Returns in %) 1 Year 3 Year 5 Year 10 Year
ICICI Prudential Balanced Advantage Fund – Regular Plan-Growth 47.04% 33.41% 71.27% 222.24%
Aditya Birla Sun Life Balanced Advantage Fund – Regular Plan-Growth 46.85% 31.07% 72.67% 157.08%
Union Balanced Advantage Fund – Regular Plan-Growth 49.24% 42.03%
HDFC Balanced Advantage Fund – Regular Plan-Growth 63.11% 31.67% 85.69% 170.68%

(Source – moneycontrol, as of 26 March 2021)

Conclusion

The returns are varying between Dynamic Balanced & Aggressive Balanced funds as fund managers have discretion over the level of allocation between debt & equity.

The returns in the Conservative hybrid are almost similar for all funds as the fund managers try to stay on the higher side of equity due to the low proportion of equity allowed.

RISK PROFILE RETURNS
Very Risky High
Risky Medium to High
Medium Low to Medium
Low Low

Also read: Best mutual funds to buy right now

Whether balanced funds are for you or not, depends on your risk profile and asset allocation. If you are on the moderate to low-risk profile then balanced funds can be on your radar.

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Prateek Goel

Prateek Goel

Co-founder of Investeek, Prateek has been investing in the stock markets since 2006 and has beaten the NSE/BSE on a consistent basis. At the age of 24, he was also featured in India Today for his expert insight on gold trading.
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