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What are the types of Balanced Funds how they are taxed and if the dividends are tax free

I have read your articles about performance of BALANCED FUNDS over last 10 / 15 yrs. Please give information about following points. 1) Are these balanced funds EQUITY ORIENTED? 2) In case of DIVIDEND PAYOUT option, is dividend TAX FREE? Is there any DIVIDEND DISTRIBUTION TAX paid by AMC? 3) For SWP any EXIT LOAD for the WITHDRAWAL? Is withdrawn amount TAXABLE in the hands of investor? 4) Which two balance funds you will RECOMMEND? 5) How DEBT ORIENTED BALANCED FUNDS have performed over last 10/15 years? Please reply at the earliest?

Aug 8, 2016 by Bhalchandra V Pade,   |   Mutual Fund

Thanks for writing to us. Please see the detailed reply of all your questions –

1. The articles that you have read about balanced funds on our website are about Equity Oriented hybrid funds or Balanced Funds as they are popularly known. These funds are equity oriented funds wherein the fund manager can invest 65 – 75% of the corpus in equities and rest in debt. While the debt portion gives stable earnings the equity portion bring long term superior returns. Please read the following articles to enhance your knowledge further

https://www.advisorkhoj.com/articles/Balanced-Funds/Can-Mutual-Fund-Balanced-Funds-be-Your-Best-Bet

https://www.advisorkhoj.com/articles/Mutual-Funds/How-Balanced-Mutual-Funds-created-wealth-for-moderate-risk-takers

Since these balanced funds are equity oriented the taxation is same that of equity mutual funds.

However, there is another category of balanced funds, popularly known as hybrid debt oriented funds. Here, the fund manager can invest only upto 25-35% in equities and therefore these funds are taxed as debt funds. These funds are also known as MIPs. You may check theses funds from here Top performing hybrid debt funds

2. Dividends received from equity oriented balanced funds are tax free and no dividend distribution tax is paid by the AMC.

3. The exit load will depend on the respective scheme’s terms. For this you should refer to the KIM (key information memorandum) of the scheme and the application form. If you start SWP within one year from the date of investment in the equity oriented balanced funds then the gains will be treated as short term and taxed accordingly. The short term capital gains for equity mutual fund is 15% + 15% surcharge + 3% Cess = Total 17.7675%.

However if you start the SWP after one year, the entire amount is tax free in your hand as long term capital gains in case of equity or equity oriented mutual funds are totally tax free!

4. Please refer our article about top balanced funds https://www.advisorkhoj.com/best-mutual-funds/Balanced-Funds-Equity-Oriented/Top-and-Best-5-Balanced-Mutual-Funds-for-investment-in-2016

5. Please check here the performance of debt oriented balanced funds - Top performing Debt oriented funds in the last 10 years

Hope we could answer all your queries to the best of your satisfaction. However, suggest you to read this https://www.advisorkhoj.com/company/ICICI-Prudential-Mutual-Fund/articles/Mutual-fund-taxation-in-FY-2015-2016 for further clarity on mutual fund taxation.

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