1. Understanding Best Balanced Mutual Funds
A balanced or hybrid provides a one-stop investment mix by investing in a mix of debt and equity instruments. It aims to balance the risk-reward ratio and ensures a return.
In India, the Best Balanced Mutual Funds typically invest 50% to 70% of their portfolio in stocks and the remainder of their resources in bonds and other debt instruments. So, they are usually equity-oriented hybrid funds. As a low-risk investment, they serve as a suitable option for first-time investors. They are for investors who do not want to take on risky options, but still want capital appreciation.
2. Advantages of Best Balanced Mutual Funds
Best Balanced Mutual Funds offers diversification in form of a single docket of a mutual fund. An investor, thus, needs to go through the hassle of analyzing and selecting a bouquet of funds. A fund manager can do this job for the investor.
A strategical combination of debt and equity components makes the funds less vulnerable to market volatility. Equity components of the fund can generate capital appreciation, while debt components shield the investment from volatility.
3. Disadvantages of Best Balanced Mutual Funds
While it might seem that balanced funds are virtually risk-free, it is not entirely the case. In case of a direct investment across a number of stocks and debt instruments, one can relocate the resources among different funds. This diversifies the assets for tax planning as well as wealth creation. However, you cannot customize diversification as the decision of resource allocation is with the fund manager.
4. Tax Implications
a. For equity-oriented balanced funds
All the mutual funds with an equity exposure of 65% or more usually comes under equity asset class for taxation purpose. So, there is a 15% tax on short-term capital gains i.e. the gains booked with one year of the equity-oriented balance. If you hold these funds for more than 12 months, a 10% LTCG tax applies if the gains exceed Rs. 1 lakh. This was as per the budget 2018. There has been no change regarding this in the Interim Budget 2019.
b. For debt-oriented balanced funds
Debt-oriented hybrid funds come under the family of debt funds for taxation purpose. The long-term capital gains tax is applicable if the fund is held for 36 months or more. The short-term capital gains are taxed at 20% with indexation benefits. In other words, equity-oriented balanced funds have a clear tax advantage over debt funds.
5. Better risk-based returns
Best Balanced Mutual Funds have given better risk-adjusted returns in the long run compared to equity returns. A comparison is given below.
||5-year rolling return
||Risk-based Std. deviation
|Large Cap Funds
|Mid cap and Large cap funds
6. How Best Balanced Mutual Funds are ranked
The following table represents the top 5 Best Balanced Mutual Funds in India based on the past 1 year returns. You may choose the funds based on a different investment horizon or include other criteria like financial ratios as well.
*This is a representative list based on key metrics as of May 29, 2018. It does not serve as a recommendation of funds nor does it claim to the only correct way to rank funds. Interest rates mentioned are CAGR.
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