Balanced Hybrid Funds

A balanced hybrid fund, also known as a balanced fund, is a mutual fund that invests in both equity and debt instruments. The goal is to diversify investments across multiple assets so that if one asset class is volatile, the fund manager can shift investments to fixed income securities.
EXPLORE FUNDS
What Is a Balanced Hybrid Fund
EXPLORE FUNDS
3 min
29-August-2024

Balanced hybrid funds are a type of mutual funds that invest in a mix of stocks (equity) and bonds (debt) to balance risk and return. The primary benefit of investing in these funds is that they aim to provide both growth (through stocks) and steady income (through bonds). This mix makes them suitable for investors who want to grow their money but are not comfortable taking high risks.

Furthermore, another major advantage is that investors don't need to manage their investments actively, as the fund manager handles the asset allocation to maintain balance and reduce risk.

In this article, we'll delve into what Balanced Hybrid funds are, how they work, and why they can be a smart addition to your investment portfolio.

What are Balanced Hybrid Funds?

Balanced Hybrid funds, which are also known as hybrid equity-oriented funds, are mutual funds that invest in a mix of equity and debt instruments. The primary aim of these funds is to give investors a balanced investment portfolio that offers both growth potential and stability. By allocating funds across different asset classes, Balanced Hybrid funds aim to mitigate risks while maximising returns for the long term.

Balanced Hybrid funds typically maintain a pre-defined allocation between equity and debt, ensuring that the portfolio remains balanced even during market fluctuations. These funds are managed actively by fund managers who regularly rebalance the portfolio to maintain the desired asset allocation.

What are Balanced Funds?

Balanced Funds, also known as hybrid funds, are mutual funds that invest in the mixture of both equity and debt instruments. The asset allocation of these funds is typically balanced to give investors a combination of capital appreciation and income generation. Investors who seek a diversified investment approach without the need for active portfolio management, are perfectly fit for Balanced Funds.

How a balanced mutual fund works

Balanced Mutual Funds work by investing in a combination of equity and debt securities, maintaining a predetermined asset allocation to balance risk and return. The equity portion of the fund provides the potential for capital appreciation, while the debt portion offers stability and income generation. Fund managers actively manage the portfolio by rebalancing it periodically to ensure that it remains aligned with the fund's investment objectives.

Investors can participate in Balanced Mutual Funds by purchasing units of the fund through various mutual fund platforms. The fund's NAV (Net Asset Value) reflects the value of its underlying assets, and investors can buy or sell units at NAV-based prices.

Features of a Balanced Fund

  1. Diversification: Balanced Funds invest in both equity and debt instruments, providing investors with diversification for asset classes.
  2. Frequently adjusted funds: Balanced Funds are actively managed, with fund managers regularly adjusting the portfolio allocation based on market conditions and investment objectives.
  3. Low Risks: Balanced Funds are less volatile compared to pure equity funds, making them suitable for investors having a moderate risk appetite.

How to invest in balanced hybrid funds

Investing in Balanced Mutual Funds is relatively straightforward. Here are some steps to consider:

  1. Define your investment target and risk capacity: Determine your financial objectives and assess your willingness to tolerate market volatility.
  2. Research and select a suitable fund: Conduct proper research on different Balanced Mutual Funds, considering factors like historical performance, fund manager expertise, expense ratio, and asset allocation strategy.
  3. Open an account on an mutual fund platform: Choose a reliable mutual fund platform like the Bajaj Finserv platform and start investing.
  4. Invest systematically: Consider investing regularly through SIPs (Systematic Investment Plans) to benefit from rupee cost averaging and mitigate market timing risk.
  5. Monitor your investments: Keep track of your investments regularly and review your portfolio timely to ensure it remains aligned with your investment goals.

Why invest through the Bajaj Finserv platform

Bajaj Finserv is a leading online mutual funds investment platform that offers 1000+ funds, including Balanced Hybrid funds. With Bajaj Finserv, you can invest in Balanced Hybrid funds conveniently and securely, without the hassle of paperwork or middlemen. Bajaj Finserv’s user-friendly interface and robust research tools make it easy for investors to make informed investment decisions and track their portfolio performance effortlessly.

Why should you invest in a Balanced Mutual Fund

There are several reasons why investing in Balanced Mutual Funds can be advantageous:

Tax benefits

When you invest in a balanced mutual fund, the fund manager can buy and sell stocks and bonds within the fund without triggering a tax event for you. If you were managing these investments on your own and decided to sell a bond or a stock to switch to a different type of investment, you are liable to pay a capital gains tax.

But, with a balanced fund, this switching is done internally by the fund manager, which doesn’t result in a direct tax for you.

Rebalancing of funds

Be aware that the value of stocks and bonds in the market can change frequently. Sometimes, stocks become expensive compared to bonds, whereas at other times, bonds may be priced higher relative to stocks. In such situations, it makes sense to invest more in one type of asset than the other. For example, if stocks are currently overvalued, it might be safer to invest more in bonds. Such adjustments create a better balance and help to maximise returns while reducing the risk of losing money.

With hybrid funds, fund managers can easily make such adjustments by shifting investments between stocks and bonds.

Risk reduction

It must be noted that investing only in stocks can be risky because their prices rapidly fluctuate. Balanced funds reduce this risk by including bonds, which are more stable. This combination also helps to balance out expected losses from stocks with the stability of bonds.

Hedge against inflation

One must understand that hybrid funds include bonds that can protect your investments from inflation. Also, bonds provide a steady income that offsets the rising cost of living by acting as a financial cushion. In this way, you maintain your purchasing power even when prices rise.

Portfolio diversification

For those unaware, diversification means spreading your investments across different types of assets to reduce risk. Balanced funds provide diversification because they include both stocks and bonds. This helps to balance returns while reducing the risk of large losses. Also, it makes them a good choice for investors who want steady returns with some protection against market volatility.

List of balanced funds in India sorted by returns

Taxation rules of balanced hybrid mutual funds

Balanced mutual funds can be either equity-oriented or debt-oriented, and their tax rules differ based on their investment ratio. If these funds invest more than 65% of their total assets in stocks (equities), they are considered equity-oriented mutual funds. Otherwise, they are debt funds.

Now, let’s see the different taxation scenarios (as per the latest changes proposed in Budget 2024) for both these types:

Equity-oriented funds

If you sell these funds within 12 months of purchasing them, the arising short-term capital gains (STCG) are taxed at 20%. On the other hand, if you hold these funds for more than 12 months, the profits are considered long-term capital gains (LTCG), which are exempt up to Rs. 1.25 lakh per financial year. Any amount exceeding this threshold is taxed at 12.5%.

Debt-oriented funds

If you sell these funds within 24 months, the short-term capital gains (STCG) are added to your income and taxed according to your income tax slab rate. Conversely, if you hold these funds for more than 24 months, the arising long-term capital gains (LTCG) are taxed at 12.5% without the benefit of indexation.

Conclusion

In conclusion, balanced hybrid funds offer investors a well-rounded investment solution, combining the benefits of both equity and debt instruments to provide stability, growth potential, and income generation. By understanding the fundamentals and nuances of balanced hybrid funds, investors can make informed decisions aligned with their financial goals and risk tolerance. Whether seeking capital appreciation, regular income, or portfolio diversification, balanced hybrid funds stand as a versatile option for navigating the complexities of the investment landscape.

Essential tools for all mutual fund investors

Mutual Fund Calculator

Lumpsum Calculator

Systematic Investment Plan Calculator

Step Up SIP Calculator

SBI SIP Calculator

HDFC SIP Calculator

Nippon India SIP Calculator

ABSL SIP Calculator

Frequently asked questions

Are hybrid funds a good investment?

Hybrid funds can be a suitable investment option to investors taking a balanced approach in investing, combining the growth potential of equities with the stability of debt instruments.

Which is better hybrid or equity fund?

The choice between Hybrid and Equity funds depends on your investment targets and risk capacity. Hybrid funds offer a balanced approach with lower volatility, while Equity funds provide higher growth potential but come with higher risk.

What are the advantages of investing in balanced hybrid funds?

Balanced hybrid funds offer several benefits. They provide instant diversification by investing in both stocks and bonds, which helps spread risk and creates a better balance between the growth potential of stocks and the stability of bonds. Also, these funds protect against inflation as bonds provide steady income. Additionally, fund managers can adjust investments based on market conditions to maximise returns.

Are balanced hybrid funds suitable for risk-averse investors?

Yes, balanced hybrid funds are suitable for investors who have a low-to-moderate risk tolerance. That’s because these funds offer a mix of equity (stocks) and debt (bonds), which creates a balance between the higher expected returns of stocks and the safety of bonds. This combination reduces the risk of loss while still allowing for some growth. Hence, these funds can be a good option for those who want a safer investment with moderate returns.

How are balanced hybrid funds taxed?

The taxation of balanced hybrid funds depends on their asset mix. For equity-oriented funds (more than 65% in stocks), short-term gains (sold within 12 months) are taxed at 20%, and long-term gains (held for more than 12 months) are taxed at 12.5% if gains exceed Rs. 1.25 lakh in a financial year.

On the other hand, debt-oriented funds are taxed based on your income tax slab for short-term gains (sold within 24 months) and at 12.5% without indexation benefits for long-term gains (held for over 24 months).

How long should I stay invested in a balanced hybrid fund?

It is advisable to stay invested in a balanced hybrid fund for at least 3 to 5 years. This is because these funds are designed for medium to long-term growth, which allows them time to recover from short-term market fluctuations. By staying invested for this period, you benefit from both the growth potential of stocks and the stability of bonds.

Can I redeem my balanced hybrid fund anytime?

Yes, you can redeem (withdraw) your investment in a balanced hybrid fund at any time. However, if you withdraw your money shortly after investing, the fund may charge an exit load, which is a small fee for early withdrawal. However, be aware that this fee and the specific terms vary from fund to fund, so it's important to always check the details before redeeming your investment.

Show More Show Less

Related videos

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements, and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.