The Merits and Demerits of Investing in Balanced Mutual Funds

1. The Merits and Demerits of Investing in Balanced Mutual Funds

2. Introduction • What if an investor could incorporate all the positive aspects of different investment securities and eliminate the risks and demerits of each? That is probably a rather utopian conceptualization of the best investment scheme that may be generated. However, if there are any avenues that come closest to attaining this perfect strategy, these are balanced mutual funds. The favourable balance of different investment assets in a balanced mutual funds investment plan makes it a popular choice among many conservative investors who would like to minimize the risk levels and reap steady returns. So, here is a look at what balanced mutual funds entail and some merits and demerits of the same:

3. What are Balanced Mutual Funds? • As the name suggests, a balanced mutual funds investment scheme strives to create a “balance” of different investment securities, including stocks, bonds and other money market instruments. • Thus, a balanced mutual fund allocates specific denominations of the investor’s corpus to the different avenues that it invests in. • Typically, it attempts to make the most of different asset classes and offers a more secure and less risky investment solution in the process.

4. The Pros of Investing in Balanced Mutual Funds • Safe Option for Conservative Investors: Balanced mutual funds are extremely safe and low-risk options for individuals with low risk tolerance levels. This is because the investment does not consist only of one type of asset but rather a logical integration of asset classes positioned at different risk levels. This ensures that while the comparatively riskier but high-yielding assets like equities provide sufficiently high returns, their risks are alleviated by other steadier avenues like debt investment assets.

5. Diversification of One’s Portfolio: Since balanced mutual funds contain different types of asset classes, they provide considerable diversification in one’s portfolio. They help investors to explore different investment avenues while also constantly having a safety net to fall back upon in times of market fluctuations. • Lower Expense Ratio: Another advantage of balanced mutual funds is that the expense ratio of this investment avenue is typically lower as compared to when one invests in individual asset classes or other types of mutual funds. For this reason, it is a popular choice amongst investors looking for affordable shares to buy and avenues to invest in.

6. The Cons of Balanced Mutual Funds Investments • Not Suitable for “Aggressive” Investors: Balanced mutual funds are not suitable investment strategies for investors looking for aggressive strategies that promise very high returns but also entail high risks. For such investors, other investment avenues like equity mutual funds, ELSS, private equities etc. may be more suitable. • More Expensive than Bond Investments: While stocks comprise only a certain portion of the assets contained in a balanced mutual funds avenue, balanced mutual funds are usually charged at the same price as equities.

7. As a result, many investors prefer long-term bonds and NCDs instead of balanced mutual funds. • No Control Over Asset and Amount Allocation: Balanced mutual funds do not allow investors to have a say in the asset and amount allocation. For instance, many of these funds may allocate 40% of the corpus to bonds and around 60% to stocks. As an investor, while one has the choice to select from different balanced mutual funds investment schemes, s/he cannot change the assets or the fund allocation strategy in any of them.

8. Conclusion • When it comes to mutual funds, an investor has a plethora of avenues to choose from, including fixed income mutual funds, equity mutual funds, new NFO mutual funds etc. Each of these schemes has its own set of merits and demerits. And balanced mutual fund is probably your go-to avenue if you are looking to explore different asset classes while minimizing the risks and reaping steady returns. We would love to help you figure out your investment goals and opt for the best investment strategies based on the same.