I have read in many forums for the last few years that it is worth having exposure in balanced funds in one's portfolio. But in today's scenario, despite allocating and selecting three good balanced funds in the market, I noticed that there is a capital loss to the magnitude of 22-28 per cent. As per the objective, one should at least expect these balanced funds to minimize the overall loss, if not protect it 100 per cent. Hence, please advise whether one should still allocate a portion of their portfolios to balanced funds or not. I had picked DSPBR Balanced, HDFC Prudence and Magnum Balanced and have been investing in them since the last two years and now I'm not sure whether to renew those starting this year.
- Jagannath Babu
A balanced fund is a steady take on growth. Its inherent design allows it to maintain an effective balance between debt and equity and makes it a suitable vehicle for long-term growth.
Balanced funds can also shift between asset classes when the markets turn favourable or unfavourable. Although they may not rise as much as equity funds during bull markets, they are designed in a way to cushion the downside better. Last year, an average equity diversified fund had shed 55 per cent while an average balanced fund lost just 41 per cent. So erosion in balanced funds is far less compared to equity funds.
Apart from this, balanced funds provide the benefit of automatic rebalancing. Also, there is no tax implication in good times as such funds are treated like equity funds for tax purposes. So for pursuing long term growth, you should continue with your investments in balanced funds.