Given the current market scenario, more people are inclining towards the balanced funds. The features of the balanced funds make this type of investment a suitable option for meeting specific financial goals like one’s retirement.
Some of such key features of the balanced funds include:
To combine and facilitate the scope of income and growth
To add stability to the investment portfolio
To maintain the asset mix automatically
To allow diversification of investment
To spread out the exposure to risk
Reasons why balanced funds are being preferred for retirement
The balanced funds offer a mix of safety, income and capital appreciation. When the market condition is better the balanced funds generate higher and better returns due to its equity component. At the time when the market condition is not very favourable, the debt component of the balanced fund acts as a cushion against the erosion of the returns on investment.
A low expense ratio on the balanced funds, than most other competitive funds, allows the investors to earn more returns on their investments. When an investor invests in a balanced fund that has a low expense ratio they benefit from it in terms of returns.
When compared to the bank fixed deposits, balanced funds have the potential to deliver more returns on investment even on a medium-term investment. This type of investment is ideal for investors who have a conservative outlook on investments.
A balanced fund investor can avail the benefit of indexation on their long-term capital gains on the share of their debt components. They can also arbitrage their funds to earn risk-free returns on investments.
If the investors start planning their retirement later in their work life they can opt for balanced funds as it is good for fulfilling intermediate financial goals. They can choose the option of earning dividends for extra earnings in their retired life.
New investors who are not very keen on managing their investment portfolio actively and who also tend to have a low-risk tolerance may invest in the balanced funds.
The returns on investment in the balanced funds are taxed on the basis of their fund orientation. The equity-oriented funds are taxed like the equities, while the debt-oriented funds are taxed like the debt funds. Each orientation of the fund differs in its rate of taxation and also has a different level of risk and returns associated with it.
Though the composition of debt funds makes it somewhat less risky, it is not entirely risk-free because of its equity component. Similarly, the composition doesn’t yield very high returns all the time but ensures that you earn a steady flow of return even in a chaotic market. The trick is to re-balance your investment portfolio on a regular basis to maximise the returns and to minimise the risks involved.
Get in touch with us to find out how to re-balance your funds in a volatile market to reap more benefits in your retired life.