A balanced fund is a type of mutual fund, in which investment is done in both stocks and bonds. Another name for this fund is “asset allocation fund” and also “hybrid funds”. Balanced funds are kept by investing 60% in stocks and 40% in bonds.
People who have more than one investment objectives go for balanced funds. Usually, the people who are retiring and the ones who do not want to take any risk with their money are the ones who find a balanced fund to be the best option.
There are two purposes of the bond component of balanced funds, one is an income stream created and the second is tempering volatility of the portfolio. Bondholders hold the claim against the assets of the company, whereas, stocks have the ownership, and thus, will have to bear the problems if bankruptcy occurs.
Some advantages of balanced funds are:
- Low total expenses.
- There is a low risk involved in selecting the wrong stocks or sectors.
- The balance funds which are for retirement, give the liberty to investors to withdraw money time to time, without affecting the asset allocation.
There are two types of balanced funds:
1. Equity-oriented balanced fund:
In this kind of balanced fund, the maximum portion of the portfolio is invested in equities and equity derivatives; a minimal portion of the scheme is invested in debt and money market investments
2. Debt-oriented balanced fund:0
These funds are low-risk investments, and also have the advantage of providing a consistent return in the long term. In case of this balanced fund maximum portion of the portfolio is invested in debt and money market investments, and a minimal portion of the scheme is invested in equity funds.
Hence, now you know what exactly are balanced funds, and with proper knowledge, you can make more calculated investments.
