Look for These Characteristics in Your Next Balanced Mutual Funds

Posted by Raghav Mehera on July 7th, 2017

Balanced funds are a great option for those who find it difficult to make a choice between debt and equity. These funds offer a combination of debt and equity to its users. But before you start investing in them, consider these characteristics of a quality balanced fund.

1.Diversification

Balanced funds give you the opportunity to diversify your portfolio. Asset allocation is taken care of, by the fund managers, so you need not worry about it anymore. Managers rebalance the fund as deemed necessary and allocate the assets accordingly.

Look at the number of holdings held by the balanced mutual fund as compared to others in the sector. If the number is small, the manager might hold back, and if it is big, the manager may try and match the index.

2.Expense ratio

The expense ratio of a balanced fund plays an important role as it is indicative of all the administrative and fund management related expenses. Your fund expenses are covered by a percentage of the fund assets, and this total percentage is the expense ratio. The quality Balanced Mutual Funds should have a lower expense ratio. Higher expense ratio means lower returns toward the end of the year.

3.Fund manager

A fund manager’s past performance is also important when choosing to invest in a fund. Conducting a thorough research on a manager’s experience and how the fund has performed in the past has become a trend in terms of return.

Knowing how the fund manager has performed in the past in different conditions is crucial. This will tell you more about the manager’s approach to managing the fund. This characteristic is less about the fund and more about the manager’s way of doing things.

4.Risk-adjusted returns

At times, equity-oriented balanced funds have even outperformed equity funds. This is an important characteristic of balanced funds as an equity-oriented balanced fund can have 30 -35% of the assets allocated to debt investments.

Such performance can be a result of an aggressive approach by the manager towards the equity portion. Small-cap and mid-cap exposure are also a reason for the outperformance of balanced fund.

5. Assets under Management

A higher AUM can reduce the fund’s expense ratio. AUM is the total amount invested in a scheme. A balanced fund with AUM of more than 100 crores or even greater than 1000 crores is ideal for investment as they can withstand massive market crashes or redemptions.

The AUM for debt schemes is far greater than that in equity schemes. Balance, with 30-35% of assets in debt investment is likely to have higher AUM.

Balanced funds are an excellent way to generate a steady income safely as they give you the combination of debt and equity along with many advantages that make balanced funds a safe option.