Read definition of Balanced Mutual Funds
Balanced Fund
Balanced fund is also known as hybrid fund. It is a
type of mutual fund that buys a combination of common stock, preferred
stock, bonds, and short-term bonds, to provide both income and capital
appreciation while avoiding excessive risk.
Balanced funds provide investor with an option of single mutual fund
that combines both growth and income objectives, by investing in both
stocks (for growth) and bonds (for income). Such diversified holdings
ensure that these funds will manage downturns in the stock market
without too much of a loss. But on the flip side, balanced funds will
usually increase less than an all-stock fund during a bull market.
Advantages of Balanced Fund
- Generally, balanced funds maintain a 60:40 equity debt ratio.
This means that 60% of their total investment is in equity and the
balance 40% in debt and cash equivalents. Balance funds combine the
power of equities (shares) and the stability of debt market
instruments (fixed return investments like bonds) and provide both
income and capital appreciation while avoiding excessive risk.
- Balanced funds continuously rebalance their portfolios to ensure
that the broad asset allocation is not disturbed. Therefore, the
profits earned from the stock markets are encashed and invested in
low risk instruments. This helps the investor in maintaining the
appropriate asset mix, without getting into the hassles of
rebalancing the portfolio on their own.
