Best balanced funds to invest in FY 2017 – 2018
Proper Asset Allocation and Regular Rebalancing are two of the most important requirements in investing. Balanced funds provide an avenue to achieve both. Balanced or Hybrid funds are a combination of Equity and Debt instruments. There are two types of Balanced Funds:
- Equity Oriented Balanced Funds (At least 65% investment in Equities)
- Debt Oriented Balanced Funds (At least 65% investment in debt instruments)
Here are the advantages of Balanced Funds:
- Best of Both Worlds
Balanced funds are suitable for investors who want to enjoy the returns from equity investments but with a safety cushion. Normally this is true for first time investors or investors which have low to moderate risk appetite. Since Balanced funds are a mix of Equity and Debt, they have lower volatility than the Equity Funds and their Returns are higher than the Debt funds. Though in a bull market these funds will not give you as much return as pure equity funds but the loss would be lower than those funds in a downward moving market.
The Balanced funds have to maintain the portfolio according to their mandate, for example, debt oriented balanced funds have to keep at least 65% of their investments in Debt instruments hence in whenever Equity portfolio of the fund crosses 35%, then Fund Manager will book profit from equities and rebalance the portfolio.
- Tax Efficiency
Equity oriented balanced funds have similar tax treatment as Equity mutual funds, i.e. Tax free after 1 year and 15% tax if redeemed before 1 year of investment. Hence, for people who want to take advantage of the safety of debt instruments without foregoing the tax efficiency of Equity funds can opt Equity oriented Balanced funds.
Best Balanced Funds
This fund has been a consistent performer and has beaten the category in 7 out of last 10 years. The fund keeps the Equity Debt mix around ratio of 70-30. The fund’s returns have beaten the category in 3 yrs, 5 yrs and 10 yrs. Its 10 yr returns of 13.54% are comparable to the returns from Large cap equity funds. The fund invests around 70% of its Equity portfolio in large caps and rest in mid cap while more than 95% of the Bond portfolio is invested in AAA rated securities and the rest in the AA rated securities.
The fund has given stupendous return of 19.24% in last 5 yrs. The fund has beaten the category returns in 7 out of last 10 years. It invests around 65%-70% in equities and rest in debt. The equity portfolio have a higher than peers allocation to mid cap and small cap funds, i.e. around 25%-30%. In debt it invests around 80% in AAA rated securities and majority of rest in AA rated. Even after being a relatively aggressive fund, it has contained its downside in the crashes of 2008 and 2011.
A comparatively new entrant in the balanced funds space, the fund was launched in 2011. It has beaten the category by an average of more than 3% in last 5 years. The fund has an equity debt mix of around 70%-30%. It has a higher allocation to mid and small cap of around 25% in the equity portfolio. This has helped it in giving an excellent return of 19.52% in last 5 years. However, the fund’s performance in a downturn is yet to be seen. The debt portfolio of the fund consists of high quality corporate bonds and G-secs with more than 80% investment in AAA rated securities and rest in AA rated.
Let us see the fund performance summary along with some key parameters in the table below :
To summarize, Balanced funds are very good tool to achieve diversification as they invest in both equity and debt. Moreover, you do not have to worry about rebalancing as it is handled by the fund manager. Also, through Equity oriented balanced funds you can use a debt cushion without foregoing the tax advantages of equities.
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