A mutual fund is a pool of funds that are professionally managed by a fund manager. A trust that invests money in stocks, bonds, money market instruments, and/or other securities after collecting funds from a number of participants who have common investing goals, and by determining a scheme’s “Net Asset Value,” or NAV, the income/gains earned from this collective investment are dispersed proportionately among the investors after taking into account any necessary expenses and levies.
Investors have traditionally been urged by finance experts to establish a diversified portfolio with holdings in a range of securities and asset types. Diversification helps to reduce the risk involved in various investments, but investors frequently choose low-yield or riskier investments in their drive to diversify their portfolios. What a breakthrough it would be if there was a way for investors to invest in both stock and debt securities through the same fund. Breakthrough has arrived, in the form of balanced mutual funds.
Understanding Balanced Hybrid Funds
After the recategorization of mutual fund schemes in 2017, Sebi created a new category of hybrid funds. Balanced hybrid funds are a sub-set of this new category.
As per SEBI regulation, a Balanced Hybrid Fund is clearly defined as a mutual fund that has 40–60% of its corpus investment in equity and equity-related instruments and 40–60% in debt instruments. Additionally, SEBI forbids arbitrage in these funds.
So, what exactly is a balanced strategy? As you can see, they are free to make investments in both debt and stock. For instance, the fund manager has the choice to invest 60% in stocks and 40% in debt if he is positive on the equities market.
Therefore, a balanced hybrid fund is a portfolio that includes an equity stock component, a bond component, and sometimes a money market component. In general, these hybrid funds adhere to a relatively stable stock-bond allocation that reflects either a moderate, or larger equities component, or a conservative, or higher fixed-income component orientation.
What is the Purpose of Balanced Hybrid Fund?
Let’s evaluate the purpose of the Balanced Hybrid fund:-
- Diversification is the most important aspect of balanced funds. The fund manager is responsible for asset allocation, as they rebalance the fund according to demand. These are one of the finest investments for individuals who want to profit from the stock market but cannot handle volatility. All types of investors can allocate a portion of their portfolios to balanced funds.
- The most significant benefit of investing in a balanced fund is to guarantee an interesting asset allocation that is protected from periods of rapid, frenzy, or market crash that investors are typically inherently sensitive to. Investors have been rewarded with respectable returns and stability thanks to balanced funds, which have repeatedly proven their value. Although balanced funds may not offer the same flashy returns as diversified equities funds, for conservative investors, they may potentially be one of the best options for long-term gain. They will assure a gentle landing and avoid heavy turbulence.
Balanced Advantage Hybrid Funds?
According to SEBI, Balanced Advantage Funds are a subcategory of hybrid funds. According to market conditions, a Balanced Advantage Fund often has the capacity to dynamically switch between equity and debt. In the case of these funds, when the markets are high and at their peaks, they reduce their exposure to equities and shift money into debt, ensuring that their gains are preserved even if the markets fall. When deciding when to switch from one asset class to another, these funds typically utilize their internal techniques.
Difference Between Balanced Hybrid Funds And Balanced Advantage Hybrid Funds
While Balanced Hybrid Funds have a predetermined ratio of equity and debt assets (between 40-60% in debt and between 40-60% in equity), a Balanced Advantage Fund largely adjusts equity exposure based on the overall market trend and valuation. According to SEBI, Balanced Advantage Hybrid Funds are dynamically managed with complete independence to fund management to determine investment in debt or equity in any proportion. In other words, equity or equity-related instrument exposure can be anywhere between 0%-100% and the same goes for the investment in debt instruments.
Best Balanced Advantage Mutual Funds (as per 3-Year Return)
| Scheme | 3 Year Return | 5 Year Return | AUM(Cr.) |
| Edelweiss Balanced Advantage Fund | 13.91% | 11.27% | 7,998.25 |
| Baroda BNP Paribas Balanced Advantage Fund | 13.57% | NA | 3,299.19 |
| Sundaram Balanced Advantage Fund | 12.45% | 9.40% | 1,547.38 |
| Tata Balanced Advantage Fund | 12.17% | NA | 5,137.81 |
| HDFC Balanced Advantage Fund | 11.52% | 10.44% | 43,358.64 |
Source: AMFI (data collected on 05/07/2022)
Major Advantages Of Balanced Hybrid Funds
Balanced Hybrid Funds offer a straightforward strategy that tackles some of the most crucial aspects of effective long-term investing in an investment environment where there are literally thousands of mutual funds to select from.
- Diversification: You can invest in a diversified portfolio that likely contains dozens, if not hundreds, of stocks and bonds with just one investment. A Balanced Hybrid Fund can be a suitable starting point if your long-term portfolio is currently sitting in cash and you’re having trouble getting started.
- Rebalancing of Funds: “Buy low, sell high” is a key component of successful investing. However, both buying additional stock during a down market and selling equities while they are performing well can be challenging. You don’t have to worry about this behavioral difficulty because Balanced Hybrid Funds periodically rebalance to keep in line with the market trends.
- Risk mitigation: Pure equities fund investments carry a considerable risk due to the potential for dramatic equity market declines. As a result, the debt portion of Balanced Hybrid Funds assists investors in balancing out the risk that the equity portion presents.
Factors To Consider Before Investing In Balanced Hybrid Funds
- Goal Orientation
Balanced Hybrid Funds may be utilized for financial objectives that can be attained ty[ically within five to seven years. If you have goals such as purchasing a car or supporting one’s own higher education, you may want to consider Balanced Hybrid Funds as a way to finance them. Even novice investors who choose not to actively manage their portfolio but have a low-risk tolerance can invest in balanced funds. To augment their post-retirement income, retirees may invest in balanced funds and choose a dividend option.
- Investment Horizon
Balanced hybrid funds may be suitable for an investor with a medium risk appetite who wishes to indulge in equity exposure with a balanced approach. Balanced Hybrid Funds may provide higher returns than Debt Funds over a medium-term investment horizon of, say, five years.
- Risk
Balanced Hybrid Funds are not totally risk-free, even though a portion of their assets are dedicated to debt instruments. The balanced fund is exposed to market risks due to the equity component. Due to market risk, the value of the fund can change along with the underlying benchmark. Balanced hybrid funds are less risky than pure equity funds, but you still need to be cautious and rebalance your portfolio frequently to get the best return on your investment. It is important to highlight that these funds have a significant portion of their corpus in equities. Hence, making them volatile investments.
- Returns
As there are no Balanced Hybrid Funds listed as per the strict definition of SEBI. If you are a moderately aggressive investor, You can consider investing in Aggressive Hybrid Funds that have 65%-80% equity exposure and 20-35% in a debt instrument, because as per the historical trends, the top 5 Aggressive Hybrid Fund as mentioned below have a track record of generating average returns that typically fall between 10% and 13%. Although balanced funds have a debt component in their portfolio, they do not provide guaranteed returns. The performance of the underlying securities has an impact on these funds’ Net Asset Value (NAV) and can change as a result of market changes.
The Bottom Line:
Balanced Hybrid Funds are an ideal for investors who don’t want to take too many risks and want to get the best of both stocks and bonds. For example, low-risk investors or older people who are already retired can use these funds to grow their money. Experts say that stock market exposure is important, especially for older people who tend to cut back on risk. Equities help investors beat inflation and make sure that their retirement funds will be worth more in the long run. With balanced hybrid funds, investors can also create an income stream while keeping limited risk in their portfolios.
Balanced Funds are a good alternative for investors searching for investments with a medium-term view. Additionally, this group of mutual funds is available to investors seeking a balance of safety, income, and modest capital growth.
Conservative Balanced Hybrid Funds are less erratic in comparison. They are better suited for investors who have a lower risk tolerance than equity-oriented funds and seek a safe income and moderate capital appreciation from their investment.
Best 5 Conservative Hybrid Fund (as per 5-year return)
| Fund | 5 Year Return | 3 Year Return | AUM (Cr.) |
| Kotak Debt Hybrid Fund | 8.98% | 11.20% | 1,467.06 |
| Canara Robeco Conservative Hybrid Fund | 8.54% | 9.78% | 1,118.38 |
| ICICI Prudential Regular Savings Fund | 8.53% | 9.20% | 3206.44 |
| SBI Conservative Hybrid Fund | 7.72% | 10.22% | 6085.58 |
| Baroda BNP Paribas Conservative Hybrid Fund | 7.36% | 7.71% | 504.78 |
Source: AMFI (data as on 01/07/2022)
Best 5 Aggressive Hybrid Fund (as per 5-year return)
| Fund | 5 Year Return | 3 Year Return | AUM (Cr.) |
| Quant Absolute Fund | 17.51% | 24.61% | 438.10 |
| ICICI Prudential Equity & Debt Fund | 13.44% | 16.41% | 18,453.12 |
| Baroda BNP Paribas Aggressive Hybrid Fund | 12.37% | 13.87% | 721 |
| Bank of India Mid & Small Cap Equity & Debt Fund | 11.93% | 19.81% | 323.94 |
| Mirae Asset Hybrid Equity | 11.88% | 11.80% | 6405.63 |
Source: AMFI (data as on 01/07/2022)
In recent years, investors have been increasingly fond of Balanced or Hybrid funds since they offer the best of both worlds. Choosing Balanced Funds can be the beginning of your mutual fund investment adventure if you are new to the world of investing. Do your own research and invest wisely.
Frequently Asked Questions:
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What is the minimum amount one can invest in a Balanced Mutual Fund?
Most mutual fund schemes typically allow investment as low as INR 500. Please, check the offer document of the mutual fund scheme for more information.
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What is the maximum amount one can invest in a Balanced Mutual Fund?
Most mutual fund schemes typically do not have a maximum investment limit, you can invest as much as you want. Please check the offer document of the mutual fund scheme for more information.
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Do Balanced Mutual Funds offer guaranteed returns?
No mutual fund including Balanced Mutual Funds offers guaranteed returns. All investment in mutual funds is subject to market risk.
*Disclaimer: Mutual funds are subject to market risk.
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