Why Should You Have Balanced Funds In Your Portfolio?

Before investing, investors should first make list of their short term and long term financial goals and invest according to their investment objective. If you have carried a moderately high risk appetite and seek capital appreciation over the long term, you can consider investing in mutual funds.

Equity and debt schemes have always dominated the mutual fund investment market. Investors generally diversify their mutual fund portfolio with equity and debt assets depending on their appetite for risk. The reason behind this diversification is to make sure that if one asset class collapses, the other asset class might provide the desired cushion and balance the portfolio’s overall risk.Also, mutual fund advisors generally ask investors to not completely depend on one asset class for income generation. When one asset class underperforms, it is less likely for all the all other asset classes to perform similarly in tandem at the same time.

What are balanced funds?

Hybrid funds or balanced funds are those mutual funds which predominantly invest in both equity and debt assets for income generation. Whether a balanced fund will invest more in equity or debt will totally depend on the nature of the scheme and its investment objective. For example, a conservative hybrid funds aims at beating its underlying index by investing more in debt than equity. Similarly, aggressive hybrid funds are known to generate capital gains by allocating a majority of its assets to equity than debt.

Should you consider adding balanced funds to your portfolio?

Balanced schemes follow a unique investment strategy for income generation and here are some of the reasons one should consider adding balanced schemes to your investment portfolio:

Balanced schemes offer multiple investment options: Now if you want to make an invest in hybrid schemes to target your income needs, you should understand the balanced schemes offer multiple investment option. The traditional way to invest in balanced funds is by making a one time lumpsum investment. However, your finances are exposed to market’s volatile nature right from the beginning of the investment cycle. On the other hand, if you wish to inculcate the discipline of regular investing and aspire to achieve long term capital gains with your balanced scheme investments, you can consider starting a SIP in balanced funds. A Systematic Investment Plan is an easy and convenient way to invest in hybrid schemes.One has to be a KYC compliant individual in order to invest in balanced schemes via SIP. Investors can decide an amount they are comfortable investing and invest this amount at regular intervals in balanced funds via SIP. Investors can invest small SIP amounts as long as the investment amount is not less than the minimum investment amount mentioned in the offer document. Investors, who are new to SIP investing can even refer to an online SIP calculator to determine how much money they need to invest at regular intervals in order to achieve their ultimate financial goal.

Balanced schemes are available in growth and dividend option:Depending on one’s investment objective and income needs, they should decide whether they want to go with the growth scheme or dividend scheme. In the growth option, the interest earned over the initial investment amount is invested back in the fund. Over the long term, this might increase a fund’s NAV. On the other hand, dividend plan is more suitable for those seeking regular income. In dividend plan, whenever a balanced schemes earns profit, investors receive dividends. However, the intervals at which investors will receive dividends is uncertain.

Do consult a financial advisor before investing in balanced funds.

What do you think?

Written by David Thacker

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