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Balanced Fund - Meaning and Other Details

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March 07, 2017

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A balanced fund is an investment that has money divided between equity and debt in a pre-determined proportion.

What is a Balanced Fund?

A balanced fund, be it in a mutual fund or a unit-linked investment plan (ULIP), works with the aim of diversifying investments over stocks and fixed income instruments like bonds and government securities.

The idea is to be invested in multiple assets so that if there is trouble, read volatility, in a particular asset class, say equities, the fund manager can shift some money in fixed income securities. This way there is a fall back option if something goes wrong in a particular asset market.

Balanced funds are ideal for investors with medium risk appetite. They invest for growth but want a certain degree of safety. That is why they prefer not to go all out in equities and choose balanced funds.

How Does a Balanced Fund Work?

Balanced funds are offered by mutual funds as also ULIPs. Typically the balanced fund has pre-set limits on equity and debt investments.

For instance, a ULIP balanced fund could have 50:50 equity-debt allocations with the option to go 10% over the pre-set limits in response to market conditions. This means that if stock markets are witnessing volatility and the fund manager anticipates losses, he could shift investments in the debt marketupto a maximum of 60% of total assets.

This allows investors to sit back while the fund manager is actively managing money across asset classes in a manner that maximizes growth. If it weren’t for balanced funds, the investor would himself have to shift money across stock markets and debt markets on a regular basis, which calls for considerable time, effort and research capabilities.

Who Is It Suitable For?

Balanced funds are ideal for investors with limited risk appetite since they can cap the losses to some extent.

However, risk-taking investors are better off investing in equity funds since they can capture the full growth potential of equities.

For an investor with appetite for controlled risk and long-term goals like saving for child’s education, retirement planning or child’s marriage, balanced funds can prove useful either on a standalone basis or in combination with other investment options.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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