Are you the first-time investor and want to time the market? General tendency of investors is to buy at highs and sell at lows, which may lead to losses. The best option is to add balanced funds in a portfolio which increases allocation in equity when markets decline and limit downside by increasing debt allocation. There is an almost threefold increase of AUM of balanced jumped to 134000 Cr as on September 2017 from a 46000 Cr year ago, this shows the rising popularity of the funds. Below are more features of balanced funds.
Balanced funds are a mix of equity and debt funds and carry lesser risk when compared to pure equity-oriented funds. Spreading the investments will reduce overall risk but it may be tedious for an individual to choose and track the individual investments. Balanced funds provide capital appreciation as well stability of the investments with debt component of it.With a minimum amount of 500Rs SIP a month it would help you diversify your investments.
You may worry about churning your portfolio when you invest in a basket of equity and debt asset classes.There comes the role of fund manager he does disciplined rebalancing of the fund targeting the equity allocation to be at 65% which makes this product superior.
Coming to tax impact, having an exposure more than 65% in equity funds balanced funds enjoy tax-free income after a holding period of 1year.In case you hold debt funds the capital gain is as per indexation after 3 years and capital gain is taxed as per tax slab.Having tax free income after 1 year is making this fund category more lucrative.
Fund Selection Criteria
Choose a fund which does not have high exposure of small cap and mid cap stocks in equity component and not to hold high duration bonds in debt components. Ensure the fund manager is actively rebalancing the funds.Contact your financial advisor before investing in the funds.