Investing in hybrid/balanced mutual funds is the best way to diversify one’s investment portfolio. Hybrid funds invest in both debt and equity instruments, and investors enjoy the benefit of realising maximum returns from both segments. Hybrid funds ensure capital appreciation and fight against the potential risk. This article covers the following:
1. Understanding Best Balanced Mutual Funds
Balanced or hybrid mutual funds are a one-stop investment option offering exposure to both equity and debt segments. The main intention of hybrid funds is to balance the ratio of risk-reward and optimising the return on investment.
Top hybrid mutual funds invest about 50% to 70% of the portfolio in equities and the rest in debt instruments. Typically, hybrid funds are equity-oriented. First-time equity investors may consider hybrid mutual funds as a viable option. Balanced funds are an excellent option for those who want maximum capital appreciation while taking a minimal risk.
2. Advantages of Best Balanced Mutual Funds
Best balanced mutual funds offer diversification in the form of a single mutual fund. Hence, investors need to analyse and select a bouquet of the right funds carefully. A fund manager can do this job for investors.
A strategic mix of debt with equity components make balanced funds less vulnerable to market volatility. Equity components of the fund can generate good returns which helps capital appreciation, while debt components shield the investment from market volatility.
3. Disadvantages of Best Balanced Mutual Funds
Like any other investment option (except the government-backed schemes), hybrid mutual funds are not entirely risk-free. Instead of directly investing across several stocks and debt instruments to diversify a portfolio, one can invest in balanced funds, and this diversifies the assets for tax planning as well as wealth creation. However, investors do not enjoy the privilege to customise diversification as the decision of resource allocation rests solely with the fund manager.
4. Tax Implications
a. For equity-oriented balanced funds
Mutual funds with an exposure of more than 65% are treated as an equity asset for taxation. Hence, there is a 15% tax on short-term capital gains (STCG), i.e. the gains booked with one year of the equity-oriented balance. If you hold these funds for more than 12 months, then a tax at the rate of 10% on long-term capital gains (LTCG) is applicable if the gains exceed Rs 1 lakh a year.
b. For debt-oriented balanced funds
Debt-oriented hybrid funds come under the family of debt funds for taxation purpose. The LTCG tax is applicable if the funds are held for more than 36 months. The STCG is 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 offered 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
|Mid-cap and large-cap funds
6. Top Best Balanced Mutual Funds
The following table shows the best balanced mutual funds in India based on the past three years returns. You may choose the funds based on a different investment horizon or include other criteria such as financial ratios as well.
*This is a representative list based on key metrics as of January 2020. 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. Related articles on Balanced Mutual funds: