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Invest in Top Balanced Mutual Funds In 2022: High Return Mutual Funds In India

Balanced funds: Best of equity and debt in a single fund
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In the long run, equities have the potential to give inflation-beating high returns. However, equities are volatile in the short run. Debt can give stability to the portfolio when equity markets are volatile or falling. What if investors can get the best of equity and debt in a single mutual fund scheme? Balanced mutual funds provide you with that. This blog focuses on how to invest in top balanced mutual funds in 2021.

What are balanced mutual funds?

A balanced mutual fund is an open-ended mutual fund scheme that invests in a mix of equity and debt instruments. Depending on the equity proportion, balanced mutual funds are further sub-categorised as:

  1. Balanced hybrid fund: It invests 40 to 60% of its total assets in equity and equity-related instruments. The debt component ranges from 40 to 60% of total assets. As the equity component is less than 65%, a balanced hybrid fund is taxed as a debt fund.
  2. Aggressive hybrid fund: It invests 65 to 80% of its total assets in equity and equity-related instruments. The debt component ranges from 20 to 35% of total assets. As the equity component is always higher than 65%, an aggressive hybrid fund is taxed as an equity fund.

As per SEBI guidelines, a mutual fund house can offer either a balanced hybrid or an aggressive hybrid fund.

Best balanced mutual funds to invest in

Let us look at the returns given by the best balanced funds.

Scheme name
(Direct Plan - Growth Option)
AUM
(Rs. crores)
1-year
(Absolute Returns)
3-years
(CAGR)
5-years
(CAGR)
Quant Absolute Fund16734.70%29.59%19.85%
BOI AXA Mid & Small Cap Equity & Debt Fund36136.27%24.21%16.32%
ICICI Prudential Equity & Debt Fund19,11230.97%22.14%15.58%
Canara Robeco Equity Hybrid Fund7,40615.57%18.88%15.20%
Mirae Asset Hybrid – Equity6,54115.19%17.86%14.83%

The above table shows the best balanced mutual fund has given a return of 19.85% CAGR in the last five years, which is a very good return.

Who should invest in balanced mutual funds?

Investors looking to diversify their investment portfolio into equity and debt instruments with a single mutual fund scheme can consider investing in a balanced mutual fund scheme. However, you need to decide whether you want to invest in a balanced hybrid fund that will give you 40 to 60% equity exposure or an aggressive hybrid fund that will give you 65 to 80% equity exposure.

An aggressive hybrid fund is suitable for investors willing to take high risks. A balanced hybrid fund is suitable for investors with a little lower risk appetite.

Taxation of balanced mutual funds

For taxation purposes, an aggressive hybrid fund (equity exposure of more than 65%) is treated as an equity scheme and taxed accordingly. On the other hand, a balanced hybrid fund (equity exposure less than 65%) is treated as a debt scheme and taxed accordingly.

Taxation of aggressive hybrid funds

  1. Short-term capital gains (STCG) tax: If you sell your aggressive hybrid fund units within twelve months of purchase, the capital gain will be classified as short-term capital gain (STCG). The short-term capital gain (STCG) tax will be levied at 15%.
  1. Long-term capital gains (LTCG) tax: If you sell your aggressive hybrid fund units after twelve months of purchase, the capital gain will be classified as long-term capital gain (LTCG). Every financial year, the first Rs. 1 lakh long-term capital gain will be exempt from taxation. The incremental long-term capital gain above Rs. 1 lakh will be taxed at 10%.

Taxation of balanced hybrid funds

  1. Short-term capital gains (STCG) tax: If you redeem your balanced hybrid fund units within thirty-six months of purchase, the capital gain will be classified as short-term capital gain (STCG). The short-term capital gain (STCG) will be added to your overall income and taxed as per the income tax slab that you fall in. 
  1. Long-term capital gains (LTCG) tax: If you redeem your hybrid fund units after thirty-six months of purchase, the capital gain will be classified as long-term capital gain (LTCG). The long-term capital gain (LTCG) tax will be levied at 20% with indexation benefit and 10% without indexation.

Risks involved in balanced mutual fund schemes

In the case of balanced funds, the risk varies depending on whether you have invested in an aggressive or balanced hybrid fund. Both funds are riskier due to the equity component. However, the aggressive hybrid fund is riskier due to the higher equity component (65 to 80%) than the balanced hybrid fund with a lower equity component (40 to 60%).

Return potential of balanced funds

In the table in the above section, we saw how the top aggressive hybrid fund had given returns of 19.85% CAGR over the last five years. Both; aggressive and balanced hybrid funds have equity exposure, although the percentage varies. In the long run, equities have the potential to give inflation-beating high returns. Hence, balanced funds also have the potential to give inflation-beating high returns. Balanced funds can create wealth for you in the long run and help you achieve all your financial goals.

Advantages of balanced mutual funds

The biggest advantage of a balanced fund is that it gives you a combination of equity and debt in a single mutual fund scheme. The equity component has the potential to give inflation-beating high returns. When equity markets are falling, the debt component cushions its impact on the scheme's net asset value (NAV). The debt component provides stability to the fund when equity markets are volatile.

Reasons to Invest in hybrid mutual fund schemes

Some of the reasons for investing in hybrid mutual funds schemes include:

  1. You get an equity exposure ranging from 40% to 80%, depending on whether you choose an aggressive or balanced hybrid fund. The equity asset class has the potential to create long-term wealth. The fund manager includes debt securities beyond equity allocation. It can provide a diversified portfolio with a mix of equity for growth and debt for stability.
  2. Diversified exposure to a mix of equity and debt in a single mutual fund scheme. As per the asset allocation strategy, an investor should invest in a diversified set of asset classes such as equity, debt, gold, real estate, etc.

However, please note that hybrid mutual fund schemes carry high risk due to their exposure to equities that can be volatile in the short run. Hence, you should consider investing in hybrid mutual fund schemes only if you have a risk appetite and a long investment horizon.

To start investing in hybrid mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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