A Balanced Fund is a mutual fund for investors who seek security, stable returns, and modest growth in capital. This blend results from investments in a combination of equities (shares) and fixed-income securities (bonds). The diversified allocation lowers the risk and provides stable returns.
How Balanced Funds Work
Balanced funds typicalluy invest in a mix of stocks and bonds, usually allocating between 40% and 60% each asset class. The most widely used is 60% equities and 40% bonds, but other schemes adjust the percentages as per the market conditions.
Types of Balanced Funds:
- Aggressive Balanced Funds: Invests in higher percentages in equities with high growth for investors with a moderate risk-bearing ability.
- Conservative Balanced Funds: Invests comparatively higher in bonds, ideal for conservative investors seeking consistent returns.
- Dynamic Balanced Funds: Gradually changing stock-to-bond ratio based on altering market conditions and hence adjustable.
Strengths of Balanced Funds:
- Diversification: Reduces risk by diversifying among stocks and bonds.
- Uniform Returns: Provides income and capital yield from bond-supported returns and serves equity-driven ones.
- Low Volatility: Less volatile compared to single equities and optimal for long-term traders.
- Expert Administration: Managed by experts who design the portfolio for optimal returns.
Hazards of Balanced Funds:
- Market Risk: Shares can fall in falling markets.
- Interest Rate Risk: The values of bonds will fall if rates rise.
- Growth Restricted: Compared to straight equity schemes, the returns shall be mediocre.
Who to Invest in Balanced Funds?
Balanced funds are appropriate for first-time investors, pensioners, and conservative risk-takers. They provide a flawless combination of growth and stability and, hence, are most in demand by investors to create a diversified portfolio.
Conclusion
Balanced funds are an excellent investment vehicle for those investors who are seeking a balance between risk and reward. By combining the growth potential of equities with the security of bonds, they offer a diversified approach to achieving long-term wealth and financial independence.
