We recommend balanced funds to first-time investors because of their unique portfolio composition & the relative stability they offer vis-à-vis pure equity funds
12-Oct-2015 •Research Desk
I have read in Mutual Fund Insight that balanced funds are the best way of taking on the market risk while earning decent returns. If one has to avail tax deductions, one needs to invest in ELSS, which I think are 100 per cent equity investments. Are there any ELSS funds that are also balanced funds?
- Rama Mohan
We recommend balanced funds to first-time investors because of their unique portfolio composition (65 per cent equity and the rest debt) and the relative stability they offer vis-à-vis pure equity funds. Most new investors can't stomach volatility in the market and they tend to flee the market when they see their investments drastically lose value in a pure equity fund. Hence, because of their relatively higher exposure to debt, balanced funds are less volatile and more suited to such investors.
We also recommend tax-saving schemes, or ELSS, to our readers who are taxpayers. In fact, we have said it repeatedly that most taxpayers need not look beyond tax-saving funds for their tax-planning and investment needs. This is because ELSS come with a three-year mandatory lock-in period, and they are relatively stable than regular open-ended equity schemes. A look at the current portfolio of ELSS reveals that most of them have invested 80 per cent of their assets in equity.
If you insist on investing only in balanced schemes to save taxes, you can check out Franklin Pension Plan and UTI Retirement Benefit Plan. Both the funds invest in a combination of equity and debt and they qualify for tax deduction under Section 80C of the Income Tax Act. Though they are called pension plans, they have only a three-year lock-in period. These schemes invest only up to 40 per cent of their portfolio in equity.