Many investors seek dual investment objectives while maintaining a low-risk appetite. Balanced hybrid funds can offer them a good investment opportunity under a single investment vehicle.
In this comprehensive guide, we will discuss the important aspects of balanced hybrid funds. Note– This guide is for educational purposes and should not be considered investment advice.
What Are Balanced Hybrid Funds?
Generally, there are two broad categories of investments. Equity investments and debt investments. Below is a table for a better understanding.
|Safety of capital
|Returns come from capital appreciation and dividends
|Returns come from interest payments
|Higher risk due to market fluctuations
|Lower risk compared to equities, but not risk-free
|Potential for higher returns but with higher volatility
|Generally lower returns compared to equity
Balanced funds offer investors the balance of both investment worlds. They invest in a mix of equity and debt, sometimes other assets too.
Asset Allocation Of Balanced Funds: Fund managers of different balanced funds allocate assets differently. Some funds invest almost equal portions in equity and debt components while others may decide to invest more than 65% of the assets in equity and equity-related instruments.
Features Of Balanced Hybrid Funds
Let’s have a look at the main features of balanced hybrid funds:
- Balanced hybrid funds invest in a mix of equity and debt components, sometimes in other assets too.
- These funds offer diversification by investing in different asset classes.
- Balanced hybrid funds carry lower risk than pure equity funds.
- These funds aim to reduce risk by spreading investments across different sectors and securities.
- These funds may help investors keep up with inflation along with the protection of capital.
- Fund managers of hybrid funds can adjust the fund’s portfolio according to market conditions.
- The combination of stocks and bonds offers both potential for growth (equities) and stability (fixed income).
- Some balanced funds may have specific investment goals, such as capital preservation, income generation, or a combination of both.
- As these funds carry lower risk than pure equity funds, the returns are also lower comparatively.
Who Should Invest
According to the features of balanced funds, we can draw some general conclusions on who should invest in these funds. However, each investor is different and has different financial goals. Hence, self-assessment is required to determine whether a balanced fund aligns with their specific needs and objectives.
A. Investors With Low to Moderate Risk Tolerance: Investors who have a low or moderate risk appetite may prefer investing in balanced hybrid funds.
B. Conservative Investors Who Want Some Capital Appreciation: Many investors want the preservation of capital along with some capital appreciation. These funds may favour them.
C. Investors Who Want Diversification: These funds offer a well-diversified portfolio under one investment vehicle. This makes balanced funds attractive to investors seeking diversification in their investments.
How are balanced Funds Taxed?
These funds are taxed according to the portfolio composition. Equity-oriented funds are taxed similarly to pure equity funds. Debt-oriented funds are taxed similarly to debt funds.
How to Invest in Balanced Hybrid Funds?
Investment in mutual funds is only a few steps away. Here are the steps:
A. Register with any reputed online investment platform/mutual fund company
B. Open an account & complete KYC
C. Select a mutual fund of your choice
D. Choose the mode of investment i.e. lumpsum or SIP Investment
E. Make the payment
F. Review the performance periodically.