3 years


Mutual Fund: Invest with Balance

Mutual Fund: Invest with Balance
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If you don’t have the stomach for wild swings in your net worth, equities may not be the most suited as- set class for you. But should the fear of volatility keep you away from long term wealth creation? A more approachable way to engage with equities is to opt for a balanced fund.

Balanced funds typically invest about 65% of their corpus in equities and the rest in debt. The downside protection through the debt portfolio also acts as a shield at times like this, when equities are on a roll, but there is a looming apprehension that valuations might just run ahead of fundamentals soon, causing a sharp pullback.

It is no wonder that Balanced Funds have seen the highest growth in in- flows among all mutual fund categories over the past six months. The assets under management for this category of schemes has doubled to near Rs 110,000 crore over the past year.

Balanced funds don’t just offer a hedged exposure to equities, they are also tax efficient. Any investment in a balanced fund is treated on par with investment in an equity fund and taxed as long-term capital gains if the holding period is more than a year. What’s more, any dividends paid out by the fund are also tax free in your hands. There are certain thresholds of as- set-class exposure that a Balanced Fund asset manager will allow itself, and within the band the fund manager has the ability to realign exposure based on the assessment of risk-re- turn opportunities. This flexibility offers a further cushion to your portfolio and helps mitigate risks and maximize re- turns.

However, while this is good in theory, what a fund actually delivers in terms of performance actually has to do with the decisions taken by the fund manager at various points of time. Here, track record of the asset management company, the specific fund and the fund manager, as well as the tenure of the fund manager with the fund are critical factors to consider.

You should look for schemes with above par performance consistency and a stable management. After all, while past performance is no guarantee of the future returns, the likelihood of a fund maintaining its trend performance is higher under the same manager than under a frequently changing one.

So, if you are the relatively risk averse kind, here’s a way to enjoy a little bit of both worlds, a Balanced Fund. Which scheme will suit you best? That’s your home work!

(A marketing initiative by Open Avenues)