Basic things you should know while investing in balanced funds

Basic things you should know while investing in balanced funds

In the current market situation, mutual fund investors subscribe to various types of funds to diversify their portfolio. Many investors are looking for an avenue where they can invest into the debt and equity both. The balanced funds is a good option for these investors. These funds invest almost 65 per cent of their corpus in the equities and remaining in the other asset classes.

Recently, SEBI has recategorized balanced funds into three categories that is Aggressive hybrid funds, Balanced hybrid funds and Conservative hybrid funds. So investors should know the basic information that they must look into while investing in these mutual fund schemes.

Below are the key aspects one should check while investing in the balanced funds.

Constituents of equity portion

Balanced funds have an overall equity exposure of around 65% which can be in the large, mid or small cap stocks. Due to the flexibility, the fund managers of these funds gets the liberty to choose stocks, which can further add risk to the portfolio. Therefore, investors should check the holdings thoroughly before investing in these balanced funds.

Understand the category

Being a mutual fund investor post recategorization of the funds by SEBI one should know all the categories under these funds. Below-mentioned are the funds categorised under this category.

The Aggressive Hybrid Fund: These funds are expected to invest in equities & equity-related instruments between 65 and 80 per cent of total assets and debt instruments between 20 and 35 per cent of total assets.

The Balanced Hybrid Fund: These funds are expected to invest in equities & equity-related instruments between 40 and 60 per cent of total assets and debt instruments between 40 and 60 per cent of total assets.

The Conservative Hybrid Fund: These funds are expected to invest in equities and its related instrument between 10 to 25 pre cent of overall assets and debt instruments between 75 and 90 per cent of total assets. Except these, the category includes the dynamic asset allocation and arbitrage funds also.

Tax treatment

While investing in the balanced funds one should know the tax treatments of investing in these funds. Currently, all the balanced funds hold average exposure of 65 per cent in equities. These funds are taxed as equity fund. However, the new conservative hybrid funds can be taxed as debt fund as more of the exposure is tuned towards debt-asset class.