Understanding balanced funds in detail

Posted by Shaheen Shaikh on December 28th, 2020

Understanding balanced funds in detail

There are several ways of investing. One way to invest your hard-earned money is to put your money in a balanced fund. You need not worry if you do not know how to invest in balanced funds. We got it all covered!

Balanced Funds Meaning

  • If you want to increase capital and do not want to take risks, you are recommended to invest in these funds as a first-time investor.
  • Also known as hybrid fund as it is a combination of debt and equity mutual funds.
  • It balances between equity and debt; that is why the name balanced funds.

Who should invest?

  • If you are a beginner, you must invest in balanced funds, as it is more focused on your capital's safety. 
  • Investors who are close to retirement can also invest.

Why should you invest?

  • It diversifies your investment portfolio.
  • If you are looking for profit from the stock markets and are not prepared for the volatile market, you should invest. The fund managers look after the re-balancing of funds as per requirements and handle the asset allocations.
  • If you are looking to invest a small portion of your income regularly, you must invest as it offers risk adjustment returns.
  • You can systematically withdraw while taking care of the right asset allocations.


  1. If you invest in equity funds, it becomes a bit risky. Due to debt instruments in hybrid funds, it balances out the risks you may face in equity funds.
  2. Investors can balance between two asset classes. This is because sometimes, the equity market is overvalued compared to the debt market and vice versa. 
  3. Balance funds have lower expense ratios (ERs). This is because they hardly have to change their mix of stocks and bonds.
  4. Without upsetting the asset allocation, it allows investors to withdraw money periodically. You can use the sip investment calculator as it calculates and shows the value of the investment at maturity. 
  5. It minimizes the risk of selecting the wrong stocks or sectors as they spread an investor's money across various stocks.


  1. It has a considerable risk factor, as every balance fund has 50%-65% exposure to the equity market. It is a significant exposure and hence not risk-free. 
  2. Compared to the potential return received, the fee charged by a balanced fund is relatively high. 
  3. You cannot decide on the choice of funds. These decisions are taken by the professional who is managing the fund.


You must be careful while investing in equity markets. Balanced funds are a great way for you to create wealth. You can do that by mitigating your risk in a highly unsteady market, and you might get mediocre returns. To avoid that, investors should analyze and allocate capital to maximize return and minimize risk. So, any investments should be made carefully, and all pros and cons should be taken into consideration by you.

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Shaheen Shaikh

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Shaheen Shaikh
Joined: April 28th, 2018
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