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Balance funds: What are they and how can you use them?

While investing, you must have come across the term diversification. Most experts advise you to diversify your funds. But it can often become quite complicated and end up as a hassle. What if there was a way in which you could invest in equity and debt instruments both through a single fund? 

Well, there’s a way for you to easily avail these advantages. And it’s called a balanced fund. Want to know more? Then strap in!

Understanding balance funds

To understand what is a balanced fund, imagine you’re crafting your investment plan, aiming for both growth and stability. Balanced Funds offer just that. These hybrid funds or balanced mutual funds blend stocks and bonds into one portfolio, striking a balance between risk and reward.

Think of it as a financial toolbox – it spreads your investments across different assets, reducing the impact of market swings. So, even if there’s turbulence, your portfolio stays steady.

Balanced funds are tailored for investors like you, seeking a blend of safety, income, and modest growth. With about 40-60% allocated to stocks, they aim to deliver stability alongside potential returns.

Unlike other funds that constantly adjust their holdings, balanced funds stick to their asset mix. This reliability offers peace of mind, ensuring your investment strategy remains consistent through market fluctuations.

Key components of a balanced fund portfolio

The major elements of a balanced hybrid funds portfolio are as follows:

Equity component

The stock portion of a balanced fund plays a crucial role in safeguarding your retirement savings against inflation and preserving its long-term value.

Within balanced funds, equity investments often favour established giants like those featured in the Nifty50 companies. Additionally, these funds may include stocks from companies that regularly distribute dividends to their shareholders. These dividends serve as a reward for owning a piece of these successful and financially sound businesses.

Debt component

In a balanced fund, the debt segment generates a steady income stream. They include bonds, particularly top-rated ones like AAA corporate debt, that offer regular interest payments, providing you with a consistent source of earnings. This income supplements other sources like pensions, personal savings, and government support, ensuring a stable financial foundation.

Secondly, the bond component acts as a buffer against market volatility. While stocks may exhibit price swings, high-quality bonds and other debt securities typically maintain a more stable value. 

This stability prevents drastic fluctuations in the fund’s share price, offering you peace of mind amidst market turbulence. Additionally, bonds often move independently of stocks, further diversifying and stabilising the fund’s overall performance over time.

Major characteristics of balanced funds 

The main features of a balanced fund are as follows:

  • Diversified: Opting for balanced funds enables investors to broaden their portfolio’s diversity by accessing various securities across both equity and debt assets.
  • Frequently adjusted: Fund managers often modify the fund portfolio to adapt to contemporary market conditions.
  • Rebalance: During significant market fluctuations, these mutual funds are structured to automatically readjust an investor’s portfolio. Fund managers have the flexibility to sell stock mutual funds or purchase them as needed to sustain the fund’s performance.
  • Lower risk: Owing to the above-mentioned factors coming together, balanced funds carry far lower risks than pure equity funds.

How to invest in balanced funds

Here’s a step-by-step guide to investing in balanced funds in mutual funds through a fund house:

  • Step 1: Sign up for an online investment account on AMC or a mutual fund aggregator website.  
  • Step 2: Select the fund and calculate the amount you are comfortable investing.
  • Step 3: Transfer the required funds from your bank account into the fund.
  • Step 4:  Keep an eye out on your fund’s performance.

Pros and cons of a balanced fund

Advantages of balanced funds

The advantages of balanced funds are as follows:

  • Diversified, constantly rebalanced portfolio: Balanced funds provide a well-diversified investment portfolio that is regularly adjusted by fund managers to maintain an optimal mix of stocks and bonds, reducing overall risk.
  • Low expense ratios: These funds typically have lower total expense ratios (ERs) due to their static allocation and passive management style, allowing investors to benefit from reduced costs.
  • Less volatility: By spreading investments across multiple asset classes, balanced funds tend to experience lower volatility compared to equity-only funds, providing investors with a smoother investment journey.
  • Low-risk: Designed for safety, income, and modest capital appreciation, balanced funds offer a lower level of risk compared to pure equity funds, making them suitable for conservative investors.

Disadvantages of balanced funds

The disadvantages of balanced funds are as follows:

  • Fixed asset allocations: The predetermined allocation between stocks and bonds may not always align with individual financial goals or risk tolerance, limiting flexibility.
  • Unsuited for tax-shielding strategies: Balanced funds control asset allocation, potentially conflicting with an investor’s tax-planning strategy.
  • Limited investment scope: Some balanced funds may focus on mainstream markets, potentially missing out on opportunities in niche or international markets, limiting potential returns.
  • Moderate returns: While offering stability, balanced funds may deliver more modest returns compared to aggressive growth-oriented funds, which may not meet the expectations of investors seeking higher returns.


Balanced funds are a pathway for you to get the best of both worlds. They offer a diversified portfolio while helping you mitigate the risks that come with managing too many investments. To know more about such one-package deals that give you the most reward for your buck, explore Stockgro!


How do balanced funds differ from other types of mutual funds?

Balanced funds blend both stocks and bonds in a single portfolio, providing diversification across asset classes.

What are the typical allocation percentages for stocks and bonds in a balanced fund?

Balanced funds typically allocate around 40-60% to stocks and the remainder to bonds.

Can investors customise the asset allocation within a balanced fund to align with their risk tolerance?

No, investors cannot customise the asset allocation within a balanced fund; it is predetermined by the fund manager.

What tax do I pay on balanced funds?

There may be tax implications associated with balanced funds, particularly regarding capital gains distributions.

How do balanced funds compare to pure equity funds in terms of risk and potential returns?

Balanced funds tend to have lower risk and more modest returns compared to pure equity funds, which carry higher risk but potential for higher returns.

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