Balanced funds are a mix of equities and bonds which provide safety because of Debt and capital appreciation because of Equity. Usually, Balanced funds invest 65% in Equities and 35% in Debt. Since these are less volatile, they are suitable for first-time investors and investors with low-risk appetite.
Balance funds are good for medium term i.e. 2-4 years.
Following are the 7 benefits of investing in Balance Funds.
1. TAX ADVANTAGE: Since these funds invest 65% in Equities they are treated at par with pure Equity Funds. All incomes from these funds are tax-free after one year.
2. Less Volatile: These funds provide the best of both worlds. Because of the Debt portion, they provide safety as well as capital appreciation because of investments in Equities. They also fall less as compared to pure equity funds when the markets fall.
3. Monthly Income: These funds provide monthly income in the form of dividends which are tax-free in the hands of the investors. Although this ultimately affects the NAV, but are good for investors looking for monthly payouts.
4. Higher Return Than Debt: Because Balance Funds invest 65% in Equity the returns are higher than the Debt Funds. Normally Debt Funds give 8-10% returns and Balance Funds give around 10-12% returns. Because the markets have performed very well recently the Balance Fund returns are in the range of 15-16%.