Can you answer some doubts about balanced funds

Thanks for writing to us. Following is the answer to your queries –

1. In the falling / down market, all the funds which has equity in it will fall / react or go down. This will reflect in correction of the NAV. Having said that it has been seen that compared to pure equity funds, fall in balanced funds were less whenever the market corrected in the past. The reason being, balanced funds have around 30-35% debt in its portfolio.

For example – During the market falls in 2008 and 2011, large cap funds fund gave -55.02% and -24.48% annual returns respectively. Diversified equity funds gave -53.56% & -24.48% and mid & small cap fund gave -58.75% and -25.67% annual returns respectively in 2008 and 2011. However, balanced funds gave – 31.94 and 13.41% annual returns respectively in these two years. As you can see the correction in balanced funds were much lesser than pure equity funds. In fact the correction was 40-45% lesser than that of pure equity fund categories.

2. Taking dividend pay-out or SWP purely depends on what is your investment objective? Are you investing to get regular returns or for growth in the long term. If you are looking for regular return then dividend or SWP option can be chosen. But it will be advisable to draw SWP only after 12 months else the gains will be treated as short term and taxed @%15%. If no regular return is required then choose growth option.

3. You can book profit from balanced fund anytime you wish. First decide how much growth you want from your investments/ or you may decide at certain percentage growth, once that is achieved you can book the profit either partially or fully. It total depends on your risk taking ability and investment objective and there are no set rules which can be applied here.

4. Yes, balanced funds may be advised for senior citizens provided they can take moderate risk. Senior citizens can allocate some portion of their portfolio in balanced funds, provided they have an investment horizon of at least 5 years. This will help them increase their overall portfolio return in the long term.

Hope we could answer your query in detail.

Thanks for writing to Advisorkhoj.