In terms of economics, a balanced mutual fund is a type of mutual fund which involves setting an investment portfolio in a mix of debt and equity instruments, seeking to balance the ratio of risks involved and rewards generated. Classified as a hybrid fund, these are usually geared towards investors who are looking for a combination of safety, income and a modest increase in their capital. This generally translates into the safest possible play in the world of investment.
Like any other type of mutual funds, balanced funds have their share of pros and cons. However, for the vast majority comprising the salaried class with a fixed employable tenure, balanced funds hold a distinct advantage which can be used to tide over the uncertainties in the market. Notable among them are mentioned as follows:
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Stability
Balanced funds invest in both share market and government bonds and securities. This results in the formation of a safety net that prevents the complete loss of the initial capital. This safety also ensures that the stocks and bonds of interest are kept in the name of the investor on a long-term basis while following terms as constant. This prevents the volatility of selection of stocks over different courses of investment and thus saves the investor time and money.
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Tax Savings
Like every other Mutual Fund scheme, Balanced Funds are also eligible for taxation. However, while the dynamic for other funds and short-term deposits changes over a period of time, balanced funds have a flat rate of taxation. This keeps the net income from the balanced fund on a constant basis, which is not guaranteed under any other mutual fund scheme.
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Diversification
Seeing as balanced funds involved in investing in different ventures, this gives the investor an opportunity to expand the scope of money invested into different sectors. This can enable investors to venture into profitable sectors not connected to each other, which is seldom the case with other types of mutual funds. Furthermore, diversification in balanced funds also lends additional safety to the capital invested, as discussed above.
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Milking of Opportunistic Advantage
Over two-thirds of the funds invested in a balanced fund are actually invested in equities. This is a special feature since a heavy gain in the market value of equities is being witnessed in the long term, however, that is not shielded from the volatility of the market. Balanced funds provide the opportunity to gain from the high value of the equities while ensuring that the volatility of the market does not take a toll on the investor. This has also been offset now by the sheer increase in the popularity of balanced mutual funds.
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Risk Factor
It has been found that balanced mutual funds give a higher return than an average equity fund. However, while the above-mentioned point may strike fear in the hearts of investors in any other mutual fund scheme, it is not so in the case of a balanced mutual fund. The sheer need for getting returns through equities means that momentary addition of a bullish equity cannot be performed without bringing an element of risk into the modicum. This safeguard also manages the debt portfolio of the investor of the balanced fund, thereby shielding the investing party from any occurrences of bankruptcy.
These advantages have enough game-changing ability in themselves to revolutionise the thinking of high-safety earning in the mutual fund market. The advice would be to invest in a good balanced mutual fund scheme, although this should be done after a careful perusal of documents related to the scheme.