Balanced Mutual Funds which are mix of Equity and Debt is among the best offering available to investors for making prudent investment decision and enjoy wealth creation.
Balanced Mutual Funds also known as Hybrid Mutual Funds consist of Equity shares as underlying which can vary from 65% to 100% and balance is invested in Debt or Fixed Income securities like Government Bonds, Corporate Bonds, Bank Deposit papers etc. Hence, the Debt allocation can vary from 0% to 35% and Equity allocation varies from 65% to 100%.
Balanced Mutual Funds will have at least 65% in Equity because as per income tax rules, only that mutual fund will get equity taxation which invests at least 65% in Equity. Equity taxation is efficient because redemption after 1 year is tax free. So balanced Mutual Funds have efficient taxation of 0% tax on capital gain after 1 year and 15% tax on gain if redeemed before 1 year.
The Fund Manager of Balanced Mutual Fund may change the equity allocation depending upon his outlook for market. If he is bullish about market then he will increase his allocation above 65% and can even go upto 100%. If the fund manager is bearish and doesn’t hold positive outlook then he will restrict his equity allocation to 65%.
The biggest advantage of balanced funds is Rebalancing of allocation between Equity and Debt. Rebalancing is the process of realigning the weights of underlying asset classes as per the policy. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original desired level of asset allocation.
For example, say an original target asset allocation of a balanced mutual fund was 65% Equity and 35% Debt. If the stocks performed well during the period, it could have increased the stock weighting of the portfolio to 80%. The fund manager may then decide to sell some stocks and buy bonds to get the portfolio back to the original target allocation of 65% Equity and 35% Debt.
Rebalancing by fund helps investor in booking profit whenever market goes up and buy equity whenever market falls. This process helps in creating alpha or extra return and reduce risk of portfolio. The good thing is that investor doesn’t have to pay tax, exit load etc when fund managers does rebalancing.
Balanced Mutual Funds are the best mutual funds available to investors for wealth creation. Invest in these funds only if time horizon is 4-5 years. Also, participate in them through SIP if equity market is overvalued and expensive. Lump Sum investment can be done if market is under or fairly valued.
Best 5 Balanced Mutual Funds are as under:
- HDFC Balanced Fund – The fund was launched on 11th September 2000. Its the most consistent balanced mutual fund . The fund is managed by Mr. Chirag Setalvad since Apr 2007. Chirag is the best fund manager in India for Mid Cap Space. The fund has delivered per annum return of 16.81% since inception. The AUM of the fund is Rs. 9509 Crores and expense ratio is 1.98%. The fund has low expense ratio when compared to peers in same category.
- ICICI Pru Balanced Fund – The Fund was launched on 3rd Nov, 1999. Its a good fund from ICICI Pru AMC which has created wealth for investors. The fund is managed by Manish Banthia, Sankaran Naren and Atul Patel . Mr. Sankaran Naren is also the CIO of ICICI Pru AMC. The fund has delivered per annum return of 14.99% since inception. The AUM of the fund is Rs. 9147 Crores and expense ratio is 2.29%. The fund has currently invested 68% in Equity and balance in Debt.
- Birla SL Balanced 95 Fund – The fund was launched on 10th February, 1995. One of the oldest mutual fund in the category. the fund has delivered per annum return 21.21% since launch which is amazing wealth creation. The fund is managed by Dhaval Shah, Mahesh Patil and Pranay Sinha. The Fund Manager Mahesh Patil is among the best fund manager in large cap space. The AUM of the fund is Rs. 6621 Crores and expense ratio is 2.29%
- HDFC Prudence Fund – The fund was launched on 1st February, 1994 and has delivered per annum return of 19.47 percent since inception. Very good track record of performance and wealth creation. The fund is managed by Mr. Prashant Jain who is one of the most prominent names of the mutual fund industry. The AUM of the fund is Rs. 17776 Crores and expense ratio is 2.26%. The performance of the fund has been volatile when compared to the funds of same category. The fund had few years of under performance but has been doing good in the last 1 year. The fund is known to take aggressive sector calls.
- DSP Balanced Fund – The fund was launched on 27th May, 1999 and has delivered per annum return of 15.53% since inception. The fund has corpus of Rs. 3152 Crores and expense ratio is 2.35% . The fund is being managed by Atul Bhole, Pankaj Sharma and Vikram Chopra. The Fund Manager Mr. Atul Bhole is a star fund manager in the balanced mutual fund category. He was earlier managing Tata Balanced fund where he delivered consistent performance for a decade. His recent shift to DSP Balanced Fund has made the fund attractive.
The past performance of all the 5 recommended balanced mutual funds is as under:
Enjoy Wealth Creation with Balanced Mutual Funds!!