Mutual funds offer immense flexibility to invest in various low and high-risk investment instruments. A diversified portfolio helps mitigate the risks of losing money and maximises benefits in all market conditions. You can invest in multiple mutual funds with diversified asset allocation or choose a balanced advantage fund to invest in debt and equities using a single fund.
Balanced mutual funds act as hybrid funds to invest in various debts and equities simultaneously, thereby diversifying your portfolio. This article thoroughly explains balanced funds and how they benefit investors.
Understanding balanced advantage funds
Balanced mutual funds are unique mutual funds that offer a comprehensive solution for investing in stocks and bonds through a single fund. The sole intention of these funds is to balance the risk-reward ratio and optimise returns. Individuals looking for minimum-risk investment instruments can invest in these funds for capital appreciation. Common features of these funds are as follows:
- These funds diversify investors’ portfolios by investing in various debts and equities.
- Balanced funds invest in debts and equities in specific ratios, thus minimising the risk.
- The funds re-balance portfolios in case of adverse market conditions.
- Investments in balanced advantage funds help fund managers to shift portfolios according to the prevailing market scenario.
Advantages of balanced mutual funds
Here are the advantages of investing in balanced mutual funds:
- Reduced risk exposure
The equity market is volatile. It can fluctuate and surge in either direction at any time, making equity mutual funds tricky for investors with a low-risk appetite. However, the debt component in the balanced advantage funds helps balance out the probable risk due to equities’ fluctuations.
- Re-balancing of funds
Sometimes equity markets get overvalued compared to the debt market and vice versa. In such cases, asset managers can shift funds across debt and equities classes to balance the risk due to market fluctuations.
- Security against inflation
Since balanced mutual funds invest in debts and equities, the debt component provides regular income while the equities component maximizes returns. Together they help beat inflation, thus acting as a hedge against inflation.
- Diversify portfolio
A diversified investment portfolio is vital to mitigating risk and ensuring capital appreciation. A balanced mutual fund help diversify your portfolio by investing in various equities, debt funds, and money market instruments and serves the dual purpose of risk reduction and capital appreciation.
Who should invest in balanced advantage funds?
Balanced mutual funds are suitable for investors seeking growth as well as stability in one fund
Balanced mutual funds are one-stop solutions that offer exposure to both debt and equity instruments. They mitigate risk and ensure better returns by investing in various assets through a single fund. Thus, they are suitable for most investors looking for low-risk capital gains over a period of time.