Balanced Funds: Characteristics, Pros and Cons for Retirement Income

Balanced Funds: Characteristics, Pros and Cons for Retirement Income

What’s your tolerance for risk? Do you prefer taking on greater risk or do you approach riskier ventures with more caution? Or do you fall into the third category, where you enjoy a little risk but don’t want to take too much risk? If you fall into category three, a balanced fund is ideal for you.

A Balanced Fund: What Is It?

A balanced fund is a hybrid fund that often invests in both equities and debt securities and is open-ended. According to SEBI regulations, balanced funds must allocate 40–60% of their assets to equities and 40–60% to debt instruments. Arbitrage is strictly prohibited.

The main objective of balanced funds is to provide investors with some stability or, as the name implies, a balance between risks and potential capital gains.

The holdings of these investment vehicles are spread over two or more asset types. Additionally known as asset allocation funds. Contrary to life-cycle funds, balanced funds don’t alter their asset mix. They vary from actively managed funds in that they don’t change their asset composition in response to general market circumstances or other variables.

What Can You Expect From A Portfolio Of Balanced Funds?

For additional income, you might invest in balanced funds if you have a low risk tolerance. This makes balanced funds perfect for retirees and the elderly. They consist of both bonds and stocks. Let’s delve a little deeper.


Balanced funds typically invest in big stocks, like those that are represented on well-known stock indices. These funds might also invest in dividend-paying firms’ stock. Dividends are the monetary rewards that businesses give to their shareholders for purchasing (and retaining) their shares.


You have the choice to generate some additional revenue via bonds. Bonds aid in lowering the volatility of your fund portfolio, which is brought on by shifting equity prices. Investment-grade bonds frequently generate interest revenue twice a year. Large corporate stocks might offer dividend payments every three months.

Cash can supplement a retiree’s pension, government benefits, and personal savings.

Even though highly rated bonds are regularly traded, they typically don’t experience the large price fluctuations that affect equities. Consequently, the stability that fixed-interest securities offer helps to prevent significant swings in the share price of a balanced mutual fund.

It’s interesting to notice that the prices of debt instruments don’t always correlate with stock prices and that they can move in the opposite direction. Bond stability contributes to a portfolio’s long-term investment return being more uniform.

What Are the Advantages of Balanced Funds?

1. Economical

Balanced funds typically have lower expense ratios since they don’t frequently need to adjust their stock and bond holdings. In other words, they’re typically less expensive than other kinds of mutual funds.

2. Low Threat

The market risks are reduced in case particular industries or stocks don’t perform as anticipated because these funds spread their cash across a variety of stocks.

3. Quick Cash Outs

Regular withdrawals from balanced funds are permitted without affecting their asset allocation.

Drawbacks Of Balanced Funds

1. Allocation of Fixed Assets

A balanced fund’s asset allocation may not be in line with an investor’s tax-planning strategy because the fund must decide what assets to hold, not the investor. This indicates that the greatest option for tax-shielding tactics is not these funds.

2. Inadequate Asset Allocation

Bonds make up the remaining 40% of a balanced fund’s capital, with 60% going to stocks. Investors’ financial demands may not always be met by this since their preferences and aims may vary over time.

3. Safe But With Limited Profits

Certain balanced funds may proceed with great care, refraining from exploring foreign or unconventional markets. Potential returns may be blocked as a result of this.

Balanced mutual fund taxation

Equity-oriented balanced funds are considered as equity funds for tax reasons because at least 60% of their capital is allocated to stocks. This means that as long as the investments are kept for more than a year, any capital gains are not subject to tax. Due to their higher stock allocation, these funds are more volatile.

Debt-oriented balance funds, on the other hand, are less volatile and best suited to investors with low risk tolerance. However, they offer far lower returns, and the gains are not eligible for tax breaks. If these investments are held for less than three years, any capital gains are considered short-term and are taxed at regular rates.

Investment holdings are considered long-term if they are held for more than three years, and after an indexation advantage is taken into account, capital gains are subject to a 20% tax rate. This can significantly lower the applicable tax.

To sum up

Investors who desire some equity exposure in addition to debt should choose balanced funds. Particularly if you wish to reap the rewards of high-risk equities investing, this is true. The way you invest your money is vital in ensuring that you don’t expose yourself to more risk than you can bear. You may browse, filter, and select zero-commission mutual funds on Fi Money. ??

Question and Answer Sheets

1. Are balanced funds a wise financial decision?

For people who are new to equity investing, balanced funds are an excellent option because they invest in equities while minimizing risks.

2. What are a balanced fund’s returns?

The best balanced mutual fund in 2022 has provided returns of almost 25% annually, with the next best being approximately 20%.

3. Are balanced funds risky investments?

Balanced investments are not regarded as high-risk. As their name implies, they strike a balance between the risk of equity investments and the risk of debt assets.

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