With the stock market at a high and equities already at attractive valuations, the balanced mutual funds could be the one for your long-term goals.
Every mutual funds house knows that not all investors have the same risk appetite. Therefore, they have equity and debt schemes to offer to investors. For those who want to take the advantage of both these assets in one scheme, balanced fund is the answer and are available with every fund house. Schemes that are made up of a mix of stocks and bonds are hybrid funds, also known as balanced funds. These schemes invest in both equity and debt in varying proportions, and are supposed to deliver capital appreciation and earn regular income. The average returns from hybrid funds, and the risk attached to them, also fall somewhere between those for the two asset classes.
The balanced mutual funds have a mix of equity and debt assets, the equity component of which has equity shares as its underlying asset from which it derives its returns, while debt component relies on the fixed and assured income from the corporate and government bonds. Somewhere in between equities and debt extremes lie balanced funds—schemes that invest in both equity and debt, in varying proportions, and generate some capital appreciation and earn some regular income. As a group, their asset mix takes on a wide range. So, the equity-debt split could be 80:20, 60:40, 50:50, 30:70, 20:80.
The majority within the balanced funds family is moderate in nature and such schemes hold 40-60 per cent in equities. The relatively lower equity exposure makes them less risky than their aggressive counterparts. There are also the conservative balanced funds which prefer to lean more towards debt, capping their equity exposure at 40 per cent, and are suitable for those looking for relatively greater safety from their balanced fund.
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