Why Should Balanced Funds Be Part Of Your Portfolio?

There are several types of mutual funds available in the market today that offer different exposure to various types of equities. These funds range from large-cap, mid-cap, small-cap to multi-cap, depending on the investment objective of the fund. On the other hand, there are various debt oriented funds that are structured to align with varying investment horizons of investors.

*Image Courtsey - Creative Commons

The bouquet of these funds do provide freedom to investors to customize their investment portfolio as per their goals but they fail to provide active management or dynamic allocation. In simpler words, an individual will have to manually adjust his/her portfolio to keep the asset allocation intact. A bull or bear rally in equities or debt can directly alter the asset ratio, which needs constant asset balancing. 

Balanced mutual funds offer a simple way to achieve desired asset allocation without compromising on returns potential. Balanced mutual fund schemes stand apart from plain vanilla equity schemes in terms of their exposure to equities. These funds invest at least 65% of their assets in equities and the remaining portion is invested in fixed income securities. The primary objective of these funds is to earn higher returns while limiting risks, hence providing a superior risk-return trade off over diversified equity offerings. 

Let’s look at other associated benefits of these funds that make them suitable to be a part of any type of investment portfolio.

1) Dynamic asset allocation - These funds can increase the equity exposure in their portfolio up to 75-80% when the equity markets appear to be undervalued and can similarly cut it to the lower range as and when the market becomes overvalued. This characteristic of balanced schemes gives them an upper hand over diversified funds that come with limited flexibility.

2) At par risk-adjusted returns - Balanced funds not only shield investors from market volatilities to a larger extent but also strive to match the performance yielded by large-cap or mid-cap equity funds. Here’s a snapshot of how balanced funds have fared against equity-oriented schemes over different time horizons.

	1-year	3-year	5-year
Balanced Funds	12.09%	12.19%	15.65%
Equity - Large Cap	14.15%	10.33%	14.76%
Equity - Mid Cap	17.27%	17.88%	23.29%

*Source- www.valueresearchonline.com

3) Tax advantage - Despite having exposure to debt instruments, balanced funds enjoy tax status of equity funds. Redemptions within one year of investment attract short term capital gain tax of 15% and those over one-year time frame are tax exempted. Similarly, dividends received from an equity-oriented balanced fund scheme is tax-free in the hands of investors.

Should you invest in a balanced fund?

Balanced funds should definitely be a part of your portfolio if you are a conservative investor or simply want to earn decent returns without taking too much of risk. Also, it is appropriate for investors who have little time to spare towards reviewing their asset allocation. Moreover, adding a balanced scheme to any portfolio will not hurt but only add stability.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Why You Must Invest In Tax Saver Funds Through SIP?

Come March and we all rush to make last-minute investments to save tax. These investments are mostly guided by the urge to save tax than to make the best use of the invested sum. We hardly take our tax investments as anything worthwhile than solving the basic purpose of claiming tax exemption. It is not surprising that those investments remain neglected thereafter and see some attention only when they are due to be redeemed or reused. 

But do you know that a little planning can make your investments do wonders. The key is not to wait till the last moment but to act as soon as the financial year begins - i.e. April. Again, you need not to invest everything at one go. Equity Linked Savings Schemes (ELSS), an eligible investment product under Section 80C, does away with the need to invest at one-go. These funds offer Systematic investment plan (SIP) option to let investors invest monthly in small portions. 

Let’s see what are all the benefits associated with SIP in a tax saver plan. 

1) Rupee-cost averaging - Investing through SIP comes with the benefit of rupee-cost averaging, meaning, you accumulate more units when the prices are low and vice-versa. This way of investing certainly favours your acquisition cost compared to one-time investments. 

2) Meeting your goals - It is worthy to reiterate that your tax investments can do more than just meeting your tax saving goals. You might be aware that the investments under tax saver funds are locked-in for a period of three years. Hence, these investments can be earmarked towards meeting your mid-term financial goals like buying a car or a foreign vacation. 

3) Added benefit of life insurance - Do you know that your monthly investments or sip can get you insurance benefit as well. Mutual funds have launched SIP schemes that give dual  advantage of tax saving as well as life insurance coverage. For instance, Birla mutual fund has introduced ‘Century SIP’, applicable on all of its tax plans, that combines tax saving with life insurance benefit at no extra cost. The minimum amount of SIP to qualify under this scheme is Rs 1,000 with no upper band applicable. Here are finer details of the scheme. 

	Insurance Cover	Example SIP Amount	Applicable Insurance Cover
Year 1	10 times the monthly SIP	5000	50000
Year 2	50 times the monthly SIP	5000	250000
Year 3	100 times the monthly SIP	5000	500000

Max Cover* 20 Lac

Max Age* Upto 55 Yrs

The insurance benefit comes along with the potential for your investments to earn higher returns. This factor alone makes SIP investments stand out from term plans or other conventional insurance plans. Also, the plan has an upper hand over unit-linked insurance plans (ULIPS), which have higher costs associated with them. 

4) Tax free returns - Another key advantage of investing in tax saver funds is that being equity-oriented, these funds enjoy tax-free returns. Let’s look at the average returns delivered by tax saver funds over the last few years. 

Tax Saver Funds	1-Year	3-Year	5-Year
	18% -24%	18%-20%	19%-22%

*Source - www.valueresearchonline.com

The stellar returns generated by these funds are unparalleled and cannot be compared with other tax saving options with scanty returns.

These points should be good enough for anyone to kick-start their tax planning right away rather than waiting for the financial year to end. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.