What is the difference between a balanced fund and an asset allocation fund?
Asset allocation tries to adjust the holdings of stocks and bonds to capture shifts in the economy, interest rates, and markets. Balance funds usually have a fixed or more tightly limited flexibility in allocations (usually about 65/35 stocks/bonds & cash) with the focus being on reducing volatility.
A balanced fund is a type of hybrid fund, which is an investment fund characterized by its diversification among two or more asset classes. The amounts the fund invests into each asset class usually must remain within a set minimum and maximum value. Another name for a balanced fund is an asset allocation fund.
Balanced funds suit investors aiming for gradual, long-term wealth growth with less concern about rapid market fluctuations. On the other hand, balanced advantage funds are better for those comfortable with a bit more risk, seeking higher returns when markets are strong.
The balanced funding option is highly recommended for those who are looking for assured returns after the end of tenure. It is also a valuable asset to those who have limited funds to invest in multiple sectors. Above all, dynamic asset allocation Mutual Funds are preferred for their steady and recurring returns.
A balanced fund is composed of multiple asset classes. A blend fund is a type of equity mutual fund that includes a mix of value and growth stocks. A mutual fund is an investment vehicle consisting of a portfolio of stocks, bonds, or other securities, overseen by a professional money manager.
An asset allocation fund is a fund that provides investors with a diversified portfolio of investments across various asset classes.
Balanced funds, also known as hybrid funds, are a class of mutual funds that contain a bond (debt) component and a stock (equity) component in a specific ratio in a single portfolio. These mutual funds help investors diversify their portfolio by investing in asset classes such as equity and debt.
Balanced funds, also known as hybrid funds, usually contain both types of assets in a single investment so that investors don't have to do the work of trying to build a balanced portfolio on their own. Just buy one investment, and your portfolio will be diversified – and you'll gain all the benefits of diversification.
Answer: As per SEBI, balanced funds must have 50% to equity and 50% allocation to fixed income instruments (debt and money market).
Returns are lower than Equity Funds- While balance finds can be safer option to invest in stock market, the safety comes at a price. Most of the balanced funds usually under-perform equity mutual funds especially during bull market as a part of their fund still remains allocated to debt funds.
Who should invest in balanced advantage fund?
These funds have been able to contain the downside using different strategies and have given decent returns with much less volatility. Therefore, if you are looking for a long-term investment with lower volatility than that in a pure equity fund, you can consider balanced advantage funds.
Balanced Retirement Portfolios
This type of investor is also willing to tolerate short-term price fluctuations. A 40% weighting in stocks and a 60% weighing in bonds has provided an average annual return of 8.82%, with the worst year -18.4% and the best year +35.9%.
Taxation of balanced advantage funds (equity-oriented)
Gains earned from equity funds with a holding period of more than a year are considered long-term capital gains and taxed at 10% on gains exceeding Rs 1 lakh in a financial year.
| Balanced Fund | Inception Date |
|---|---|
| Vanguard Balanced Index Fund Admiral Shares (VBIAX) | 11/13/2000 |
| iShares Core Growth Allocation ETF (AOR) | 11/4/2008 |
| iShares Core Moderate Allocation ETF (AOM) | 11/4/2008 |
| Fidelity Freedom Index 2030 Fund Investor Class (FXIFX) | 10/2/2009 |
Whereas people who are retiring with more typical time horizons, so people retiring with 25- or 30-year time horizons, are better off with portfolios that are balanced in nature. The 60/40, the 50/50, even the 40/60 portfolio tends to support the highest safe withdrawal amount.
While balanced funds are a comparatively conservative investment strategy, they are still not 100% risk-free because bonds will fluctuate if interest rates change. Since bonds demonstrate an inverse relationship with interest rates, an increase in interest rates will cause bond values to fall.
We recommend enhanced diversification through alternative investments, which provide reduced correlation and increased return potential in a modern portfolio of, say 40/30/30 equities, bonds, and alternatives, respectively.
Typically, this fund is the best option for investors with a low-risk tolerance who are looking for investment options that make up for growth outpacing inflation; they also generate income that helps to supplement investors financial needs.
Asset allocation involves dividing your investments among different assets, such as stocks, bonds, and cash. The asset allocation decision is a personal one. The allocation that works best for you changes at different times in your life, depending on how long you have to invest and your ability to tolerate risk.
Balanced funds are suitable for a medium-term horizon and are ideal for investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts this type of mutual fund invests into each asset class usually must remain within a set minimum and maximum.
What do balanced funds buy?
Balanced mutual funds invest in both bonds, which focus primarily on income, and stocks, which aim for investment growth.
1. Current NAV: The Current Net Asset Value of the SBI Balanced Advantage Fund - Regular Plan as of Feb 13, 2024 is Rs 13.35 for Growth option of its Regular plan. 2. Returns: Its trailing returns over different time periods are: 24.81% (1yr) and 12.94% (since launch).
Over the long term, balanced portfolios have provided a Goldilocks-like solution for investors who can't stomach the volatility of only owning stocks but require higher returns than fixed income to meet their objectives.
An ideal balanced portfolio could be structured as a combination of various assets, such as a quarter of dividend-paying blue-chip stocks, the next quarter of small-capitalization stocks, another quarter of AAA-rated government bonds, and the last quarter of investment-grade corporate bonds.
Balanced funds are comparatively low-risk investments compared to equity mutual funds, but they are not 100% risk-free. The debt components of balanced funds are subject to credit and interest rate risks.
