Special Report

Have A Balanced Outlook

The best way to address the jittery markets & still benefit from equity gains is by investing in balanced funds

2011 was an unusual year for many reasons. The year kept investors on their toes for a major part of it. The past year was jittery for not only equity investors, but debt investors as well. With the Reserve Bank of India (RBI) on an interest rate hike spree, long-term debt investors were forced to move their investments to shorter-term debt. While Fixed Maturity Plans (FMP) and short-term debt funds found favour because of the rising interest rates, the hikes didn’t go down well with the equity markets. That, coupled with the generally pessimistic global economic scenario and the socio-political battles brewing back home meant that equity investors suffered losses and equity mutual funds struggled to stay above the waters.

The good news is that 2011 has come to an end. However, the not-so-good news is that 2012 might just be a mirror image of its preceding year. The economic problems prevailing around the world will not get rosy anytime soon. The troubles ailing our country will also take their own time to mend. So then, what should the common investor do? What should your investment strategy for 2012 be?

Our answer to these questions is the same thing what we have said all through 2011. If you are a long-term investor, you shouldn’t be fazed by what is happening around you. You should have your goals in place, and you should keep investing systematically to achieve them. We have said it time and again that this is the right time to invest in equity. Common sense says that one should buy low and sell high, and right now, there are numerous stocks that are available at cheap valuations.

For debt investors, investing systematically makes even more sense because the RBI has finally put a halt to interest rate hikes. The rates are expected to go on a downward trend in the coming years, and long-term debt investors will benefit greatly from this.

So, on the whole, even if things don’t look entirely positive, investors will do well if they keep investing regularly. That said, we wouldn’t blame investors for being skeptical about the current economic scenario. It’s your hard-earned money that is on the line, after all. No one likes to see their money go away, and especially in times like these, the feeling of hugging your money close to yourself can be extremely overwhelming. But at the same time, if you want to see your money grow, you must invest it somewhere. But where?

Well, one of the best investment avenues for an uncertain market is balanced funds. What you get here can literally be the best of both worlds. Balanced funds are the type of mutual funds that invest in equity as well as debt. There was a time when balanced funds generally had about half of equity and half of debt. However, once long-term equity gains became tax free, balanced funds started to increase their exposure to equity. Today, balanced funds have around 65 to 75 per cent of their assets invested in equities.

This higher exposure to equities is a good thing because it gives the fund’s performance a boost. And at the same time, the exposure to debt ensures that the fund doesn’t fall drastically during market upheavals. The equity-debt mix that balanced funds have ensures that they earn decent returns without taking indecent risks.

Another advantage of investing in a balanced fund is that you don’t have to worry about the tedious process of rebalancing your assets. That gets done automatically for you, and by an expert fund manager. Plus, since a majority of a balanced fund’s assets are invested in equities, they are treated as equity investments and long-term gains (gains on investments held for more than one year) become tax-free.

As you can see, the arguments in favour of balanced funds are plenty. We believe that they are the ideal investment for those who seek good long-term returns at relatively lower risks. So pick one or two well-performing balanced fund, invest in them systematically and see your money grow without being overly concerned about where the markets are going.

Some good balanced funds that you can choose from are Birla Sun Life 95, HDFC Prudence and Tata Balanced. All three funds have a proven track record and are part of the Value Research Fund Select family. Pick the ones you like and get started.

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