Mutual funds are the best investment schemes for investors who want to invest in the volatile share markets with minimal risks. Mutual funds can be broadly classified into three categories, equity mutual funds, debt mutual funds and balanced mutual funds. A Balanced mutual fund is a type of mutual fund that provides the benefits of investing in both equity and fixed income securities. Hence the investor can benefit from both types of share market instruments
How does an investor benefit from a balanced mutual fund?
Incomplete debt funds, an investor has to deal with low capital returns and miss out on growth opportunities. Whereas equity funds come with high risks which can lead to losses for the investor. Balanced mutual funds comprise of both equity and debt funds and negate the risks that may arise due to drastic fluctuation in the market. In volatile market conditions, the fixed nature of the debt securities will provide the much-needed stability to the equity funds. This helps the investor to gain a steady amount of returns despite the ups and downs of the financial markets. Therefore, the equity component in a balanced mutual fund results in the growth of capital and generates returns, while the debt component keeps an investor insulated from market volatility.
What are the advantages of balanced funds?
Safer investment: - Balanced mutual funds are safer investment options as it offers the benefits of both debt and equity schemes. An investor is assured on both higher growth and stability under balanced mutual funds. Hence balanced funds are more profitable and less volatile.
Risk-Adjusted investments: - The profits that you gain from balanced mutual funds are risk adjusted. This is achieved by investing the funds small cap and mid cap stocks, the gains and risks are adjusted to provide more returns.
Good tax saving instrument: - Since majority of the balanced funds are invested in the equity markets, the long term capital gains which are received as returns is exempt from taxation. Moreover, the debt component also provides indexation tax benefits for holdings that exceed a year. Hence, balanced mutual funds are a great tax saving investment.