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Commonly, mutual funds are defined by the asset class of investments they own. Equity funds own only stocks. Bond funds or fixed income funds own only bonds. A few mutual funds own both stocks and bonds; these are called Balanced Funds or Hybrid Funds.
A Balanced Fund is a mutual fund that includes a stock component, a bond component, and sometimes a single portfolio component of the money market. Such funds typically stick to a relatively fixed mix of stocks and bonds. Their investments are aligned with a target of growth and income between equity and debt. Thus, the name ‘Balanced’. Balanced funds are primarily sought by investors seeking a mixture of stability, income, and moderate appreciation of assets.
A Balanced Fund operates with less risk in diversifying investments within a shorter period of time. Due to constantly changing market conditions, these funds reduce the risk of a slump while managing some basic returns due to debt exposure. This makes Balanced Funds a pretty apt investment option for investors seeking a mid-term return with a slightly lower risk compared to investing in equity funds.
A Balanced Fund comes in different categories based on the proportion they invest in equity and debt instruments. The below table gives an idea of the different categories of Balanced Fund
| Balanced/Hybrid Fund Category | Equity Proportion | Debt Proportion |
| Aggressive Hybrid Fund | 65-80% | 20-35% |
| Balanced Hybrid Fund | 40-60% | 40-60% |
| Conservative Hybrid Fund | 10-25% | 75-90% |
| Dynamic Asset Allocation Fund/Balanced Advantage Fund | No Limit | No Limit |
| Multi-Asset Allocation Fund | At least 10% in each asset class (equity, debt, gold) | At least 10% in each asset class (equity, debt, gold) |
| Equity Savings Fund | 65% minimum but can be hedged with derivatives | 10% minimum |
Best Of Balanced Funds Or Hybrid Funds To Invest FY 20 – 20
Top Performing Aggressive Hybrid Funds
This fund allows 65 – 85% allocation to equity related instruments and about 20 – 35% towards debt instruments. Here is a list of top performing Aggressive Hybrid Funds
| Fund name | NAV (Rs.) | Net Assets (Rs. Cr) | 3 Mo (%) | 6 Mo (%) | 1 Yr (%) | 3 Yr (%) | 5 Yr (%) | 2018 (%) |
| Aditya Birla Sun Life Equity Hybrid 95 Fund Growth | 760.36 | 11,608.00 | 6.1 | 0.3 | 5.9 | 7.2 | 7.5 | -5 |
| Principal Hybrid Equity Fund Growth | 76.74 | 1,578.00 | 6.2 | -1.6 | 3.9 | 10.7 | 9.2 | -1.5 |
| SBI Equity Hybrid Fund Growth | 144.73 | 30,906.00 | 8.1 | 5 | 16 | 12 | 10.4 | -0.1 |
| DSP BlackRock Equity and Bond Fund Growth | 161.88 | 6,303.00 | 7.8 | 5.5 | 15.6 | 10.3 | 9.7 | -5.1 |
| ICICI Prudential Equity and Debt Fund Growth | 137.89 | 23,950.00 | 7.9 | 1.4 | 9 | 9.8 | 9.3 | -1.9 |
Top Performing Conservative Hybrid Funds
This scheme will invest considerably in debt instruments. Approximately 75 to 90% of their total assets will be invested in debt instruments and approximately 10 to 25% in equity instruments. This scheme is called conservative because it's a scheme for people who are risk-averse. Investors who do not want to take much risk with their investment prefer to invest here. Here is a list to consider for Conservative Hybrid Funds
| Fund name | NAV | Net Assets (Cr) | 3 Mo (%) | 6 Mo (%) | 1 Yr (%) | 3 Yr (%) | 5 Yr (%) | 2018 (%) |
| ICICI Prudential MIP 25 Growth | ₹ 45.07 | ₹ 1,673.00 | 4.2 | 4.7 | 10.6 | 8.6 | 9.2 | 5.1 |
| SBI Debt Hybrid Fund Growth | ₹ 41.34 | ₹ 1,093.00 | 3.8 | 3.9 | 10.1 | 4.9 | 7.8 | -0.2 |
| Aditya Birla Sun Life Regular Savings Fund Growth | ₹ 40.35 | ₹ 1,960.00 | 2.9 | 2.7 | 7.2 | 5.2 | 7.9 | -2.2 |
Top Performing Arbitrage Funds
This fund follows an arbitrage strategy and invests at least 65% of its assets in instruments related to equity. Arbitrage funds are mutual funds that leverage the price difference between the cash market and the derivatives market in order to generate returns from mutual funds. The returns created by arbitrage funds depend on stock market volatility. Arbitration mutual funds are hybrid in nature and these funds offer fairly risk-free returns to investors in times of high or sustained volatility.
| Fund name | NAV | Net Assets (Cr) | 3 Mo (%) | 6 Mo (%) | 1 Yr (%) | 3 Yr (%) | 5 Yr (%) | 2018 (%) |
| Edelweiss Arbitrage Fund Growth | ₹ 14.29 | ₹ 3,854.00 | 1.3 | 3.2 | 6.3 | 6.1 | 6.6 | 6.1 |
| Reliance Arbitrage Fund Growth | ₹ 19.72 | ₹ 9,497.00 | 1.2 | 3.1 | 6.3 | 6.2 | 6.7 | 6.8 |
| Kotak Equity Arbitrage Fund Growth | ₹ 27.48 | ₹ 16,198.00 | 1.3 | 3.1 | 6.2 | 6.1 | 6.6 | 6.3 |
Top Performing Dynamic Asset Allocation Funds
This fund follows a dynamic approach towards fund allocation between debt and equity. The allocation in debt increases and equity allocation decreases based on market volatility. The fund aims at providing stability at low risk.
| Fund name | NAV | Net Assets (Cr) | 3 MO (%) | 6 MO (%) | 1 YR (%) | 3 YR (%) | 5 YR (%) | 2018 (%) |
| HDFC Balanced Advantage Fund Growth | ₹ 188.87 | ₹ 37,850.00 | 2.9 | -1.2 | 3.1 | 16.6 | 15.5 | - |
| ICICI Prudential Balanced Advantage Fund Growth | ₹ 37.70 | ₹ 28,287.00 | 6.9 | 5.1 | 12 | 10.1 | 9 | 2.4 |
| Reliance Balanced Advantage Fund Growth | ₹ 93.51 | ₹ 2,495.00 | 4.7 | 1.8 | 9.4 | 11.3 | 7.6 | 0.4 |
Top Performing Equity Savings Funds
This scheme invests in equity, arbitrage and debt instruments. It allocates a minimum of 65% in equity and a minimum of 10% in debt instruments.
| Fund name | NAV | Net Assets (Cr) | 3 MO (%) | 6 MO (%) | 1 YR (%) | 3 YR (%) | 5 YR (%) | 2018 (%) |
| DHFL Pramerica Equity Savings Fund Growth | ₹ 33.34 | ₹ 35.00 | 4.4 | 3.5 | 10.3 | 7.6 | 8.5 | 1.4 |
| HDFC Equity Savings Fund Growth | ₹ 37.44 | ₹ 4,732.00 | 3.5 | 0.8 | 6.6 | 7.5 | 7.7 | 0.9 |
| Principal Equity Savings Fund Growth | ₹ 36.84 | ₹ 52.00 | 2.8 | 2.1 | 5.6 | 6.8 | 6.1 | 1.6 |
Top Performing Multi Asset Allocation Funds
This scheme invests in an additional asset class apart from equity and debt. It is mandated to invest a minimum of 10% in each class. (It is to be noted that Foreign securities is not treated as a separate asset class)
| Fund name | NAV | Net Assets (Cr) | 3 MO (%) | 6 MO (%) | 1 YR (%) | 3 YR (%) | 5 YR (%) | 2018 (%) |
| SBI Multi Asset Allocation Fund Growth | ₹ 28.61 | ₹ 261.00 | 4.1 | 7.6 | 12.1 | 6.9 | 8.2 | 0.4 |
| HDFC Multi-Asset Fund Growth | ₹ 32.88 | ₹ 194.00 | 5.7 | 1.9 | 9.3 | 5.6 | 6.3 | -1.9 |
| Axis Triple Advantage Fund Growth | ₹ 21.11 | ₹ 279.00 | 6.9 | 7.8 | 17 | 9.3 | 7.6 | 1.9 |
Additional Reading: Best Performing Mutual Funds
How To Identify The Best Balanced Fund?
Balanced or Hybrid funds work to combine the best of the equity and debt markets to give stable returns with low risk. From the above list, we can see that the best Balanced Funds allocate about 50 – 70% of the assets in equity and the rest in debt instruments. Though they typically lean towards the equity market, they are a viable option for first time investors who want maximum capital appreciation with a low risk factor.
Why should you opt for a Balanced fund?
A carefully planned mix of debt and equity components makes it less vulnerable to market volatility to Balanced Funds. The fund's equity components can generate accelerated returns that contribute to capital appreciation, while debt components shield investment from market volatility.
Best balanced mutual funds in the form of a single mutual fund offer diversification. Investors therefore need to carefully analyse the fund options to choose the one that suits their needs. For first time investors, a fund manager can help them with this.
Cons of a Balanced Fund
Like any other market linked investment, Balanced Funds too is not totally risk free. Balanced Funds provide you an avenue for fund diversification with minimal risk. However, the asset allocation decision lies with the fund manager and the investor does not enjoy much say in this matter.
Tax Implications Of Investment In Balanced Funds
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Equity oriented Balanced Funds – Funds with more than 65% exposure to equity are treated as equity assets for taxation purposes. They attract a 15% short term capital gains tax (STCG) for gains booked within one year of investment. For gains after one year of holding, 10% LTCG tax on gains exceeding Rs.1 lakh, is applicable.
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Debt oriented Balanced Funds – These funds are considered as debt funds for the purpose of taxation. LTCG tax is applicable if the funds are held for more than 36 months. The STCG is taxed at 20% with indexation benefits.
Therefore, equity oriented Balanced Funds have a clear advantage on tax over debt oriented Balanced Funds.
End note: Equity instruments are highly risky. The market as a whole can decline by enormous magnitude in extreme situations. For example, the Nifty saw more than 50% decline from 6,000 levels to 2,500 levels in 2008 as the financial crisis hit India. Debt markets are relatively less volatile due to stable returns on debt instruments. Contrary to debt markets, equity markets are sometimes overvalued and vice versa. In such a scenario, balanced mutual funds allow for free movement between the two asset classes by the fund manager. This also removes any tax liability that could originally be levied in case of movement of assets between equity to debt instruments and vice versa. If it was done by the investor himself, he would be liable to pay LTCG tax, which does not occur in the case of a Balanced Fund managed by a fund manager. Overall, a Balanced Fund allows you to take advantage of the high returns of equity instruments under the stability cover of debt instruments.