Why you should invest in balanced fund options

When you plan to make investments, you will come across different kinds of funds. You will find yourself looking for an answer to the most basic question, ‘where to invest money?’ Whether it is an investment in a Unit Linked Insurance Plan (ULIP) or a Mutual Fund’s (MF) systematic investment plan, you are allowed to make a selection between equity funds, debt funds, and balanced funds. However, many financial experts will usually advise you to invest in balanced fund options. 

Before you consider an investment in a balanced fund, let’s begin by understanding its meaning and how it works:

What is a balanced fund and how it works?

A balanced fund equally divides a pre-determined sum of money between equity funds and debt funds. In simple terms, it provides you with a perfect combination of equity and debt exposure. It works with a primary aim of diversifying investments over stock as well as fixed income instruments such as bonds, government securities, etc. 

A balanced fund is offered under a ULIP as well as mutual funds. Moreover, it generally has pre-set limits on equity funds and debt funds. For instance, a ULIP balanced fund might have 50:50 allocations on equity and debt instruments. Moreover, it might go at least 10% over its pre-set limits depending on the market performance. Now, if the stock market is fluctuating and you expect a loss, you can shift your investment in debt funds up to a maximum of 60% of total assets. 

You should also consider the following things given below before investing in balanced fund options:


  • Risk


Although a specific percentage of allocation is towards debt instrument, balanced fund is not risk-free. Due to the involvement of equities, a balanced fund is likely to be affected by the market risk. These market risks can become the major problem for the fluctuation in the fund value. However, a balanced fund is comparatively less risky than a pure equity fund. If you wish to obtain the fullest out of your investment, see to it that you rebalance your portfolio regularly.


  • Return


If you have a moderately high-risk appetite, you will generally think of an investment in a balanced fund. However, a balanced fund might not offer guaranteed returns irrespective of a debt element in its portfolio. During market downfalls, it might fail to deliver satisfactory returns. 


  • Life Goals


An investment in balanced funds is generally beneficial to fulfil medium-term financial goals. These goals, like purchasing a new car or going abroad for higher education, can be fulfilled within a time frame of 5-7 years. In addition to this, a prospective investor with low-risk appetite can opt for balanced funds. Initially, retirees can invest in a balanced fund option and later choose a dividend option to increase their retirement income. 

Like any other investment, an investment decision for balanced fund options should be taken with a lot of thought. Hence, let’s understand to see if it is suitable for you or not:

Who should invest in balanced fund options?

A balanced fund is apt for those investors who are looking for a mix of income, safety, and moderate capital appreciation. When the market is on the rise, you will receive high returns due to the equity component. However, the debt element will protect your returns from being eroded during the market downfall. 


To sum up, during the fund selection, analyze the fund from different perspective. You should consider several qualitative and quantitative parameters, which will help you to arrive at the best balanced and tax saving options based on your requirement. Moreover, you should keep your financial goals, risk appetite, and investment horizon in mind while opting for any systematic investment plan so that you can maximize returns and accumulate the required funds.