These days an inexperienced investor must be wondering where to put his hard earned savings. The equity market is clueless and the traditional avenues, although they are relatively less risky, provide meager yields. So the only choice that comes to the minds of investors at large is the Mutual Funds (MFs). These MFs provide an advantage of diversification of risk and the professional expertise of Fund Managers.
Now the question is, in which category of MFs to invest, equity or debt or balanced. Equity funds are relatively more risky because of the uncertainty and volatility in the equity markets. In today’s scenario, when the interest rates are rising, most of the bond funds are facing the brunt because the increased interest rates have pulled down the prices of most of the bonds and their portfolio has come down in value. There is no clear cut direction the interest rates might take in the future. So even the bond funds are a risk in such a scenario. This leaves only the balanced funds. Let us take a closer look at these balanced funds.
Balanced funds are those funds, which invest a certain percentage of their corpus in equity and rest in the bonds. This gives the benefits of both the equity investment and fixed income investment. In today’s scenario, it would be best to invest in a balanced scheme of a MF. The reason being, investing in such a MF would give the benefits of diversification across the class of securities.
After the introduction of index futures, it has become easier for the MFs to hedge themselves against the market risk. But even that hedge works up to a certain point of time, so the exposure to the equities should be limited. Also, there are balanced funds that take more exposure to certain sectors, like some Indian MFs were doing trying to ride the ICE boom. But such funds are again more risky because the returns from such funds depend upon the performance of a particular sector.
The investment in bonds assures a steady stream of income without taking the entire risk inherent in the bond funds. Again, in today’s scenario, where the direction of interest rates is clueless, one should not take excessive exposure to bonds market. That’s why a balanced fund is an ideal investment in today’s scenario. A quick look at the returns from the schemes of two of the MFs would put the things in a better perspective.
Usually, in rising markets, the returns on equities tend to be higher than other investments but they also carry the maximum risk. And now that the SEBI has put a 16% circuit filter, they have become all the more risky. A Balanced Fund provides the benefits of equity investments with limited risk and also a steady stream of income.
Therefore, in today’s market scenario, Balanced Mutual Fund is not having considerable exposure to any particular sector. But an investor needs to keep certain basic rules in mind while selecting balanced funds. Reliance Mutual Fund provides you the best convenient approach for the same. It also provides you with the detailed and exact meaning of mutual funds and so. So go ahead and invest in balanced funds!
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