Should You Invest in Balanced Funds?

Do you want safety and capital appreciation in your investments? Are you looking for a return above inflation in the long run? If so, you may consider putting money in balanced funds. Balanced funds, often called hybrid funds, are a type of mutual funds. It invests your money in both stocks and bonds. 

Balanced funds put money in equity and may generate capital appreciation in the long-term. However, they also invest in fixed income instruments and protect your portfolio during a stock market correction. However, should you invest in balanced funds?

Balanced funds are of two types—aggressive hybrid funds and balanced hybrid funds. Aggressive hybrid funds invest around 65%-80% of the total assets in stocks. However, they have a small allocation toward fixed income instruments. Balanced hybrid funds may invest about 40%-60% in either equity or debt securities. A mutual fund house offers either an aggressive hybrid fund or a balanced hybrid fund according to the rules stated by SEBI, the regulator of the capital market. 

Also Read: What are Arbitrage Funds? Are They Good For You?

Why invest in balanced funds?

You may consider diversifying your portfolio with balanced funds. You could get a higher return over the long run by investing in equity-oriented instruments. However, the debt component of the balanced fund protects your portfolio from a stock market crash. 

Aggressive hybrid funds invest at least 65% of the corpus in stocks and are taxed as equity-oriented funds. If you redeem the investment after one year, the returns are called long-term capital gains (LTCG). Your long-term capital gains of over one lakh in a financial year are taxed at 10%. However, your investment in the aggressive hybrid fund enjoys the tax benefits of an equity-oriented fund even though it puts some money in debt instruments. 

Should you put money into balanced funds?

You may consider investing your money in balanced funds depending on your risk appetite. The balanced hybrid fund has a higher allocation to debt securities. You could invest your money in the fund if you have a low-risk tolerance. You may put money in aggressive hybrid funds if you have a higher risk appetite. 

You could consider a balanced fund if you seek a fusion of safety and capital appreciation. Balanced funds cushion your portfolio during a market correction. However, they offer you a lower return during a bull market as compared to funds with a higher equity component. 

If you are a first-time investor in stocks, you may consider investing in a balanced fund. You could put your money in balanced funds with an investment horizon of three to five years. However, an ideal horizon could be over five years for long-term financial goals, such as buying a dream house or funding your child’s higher education. 

You can invest in a balanced fund only if it matches your investment objectives and risk profile. Check the asset allocation before putting your money in the balanced fund. You must select a fund with consistent performance against peers and the benchmark for quite some time. Choose a mutual fund house with a good track record of performance and large assets under management. In a nutshell, you must pick a balanced fund that matches your financial goals and tax needs.

For any clarifications/feedback on the topic, please contact the writer at

cleyon.dsouza@cleartax.in