List of Best Balanced Funds to Invest in India 2025

1. Equity-Oriented Balanced Funds
   1. The portfolio of equity-oriented balanced funds usually invests majority of the money into equities and equity derivatives. Most of the capital in such a scheme is invested in several different money market and debt instruments.
   2. The capital appreciation in equity-oriented balanced funds is aggressive as it is the main focus of these funds, with interest income from debt instruments taking the back seat.
   3. Despite the fact that regular equity mutual funds and equity-oriented balanced funds offer similar returns, the risk associated with equity-oriented balanced funds is relatively lower, thereby making them attractive options.
2. Debt-Oriented Balanced Funds
   1. Debt-oriented balanced funds are ideal investment options for conservative investors. A large part of the money in the portfolio of debt-oriented balanced funds is put into debt and money market instruments.
   2. The risk involved with these funds is relatively low, and they have the potential to provide consistent long-term returns.
   3. In addition, the portfolio's equity part can aid the fund in making the most of the increasing equity capital markets whilst protecting the debt instruments from inflationary and interest rate risks.

Features of Balanced Funds

1. Diversifying Portfolio - Balanced funds allow investors to diversify their portfolio as they invest in a variety of instruments like equities and bonds.
2. Yield Good Returns - Balanced funds will yield sizeable returns owing to the fact that they invest a major portion in equities.
3. Portfolio Re-balancing - Balanced funds function to automatically re-balance your portfolio, something which can be a blessing when the markets may be unstable. For this reason, fund managers will sell equity funds to maintain the fund's highest level and vice versa.

Benefits of Balanced Funds

The benefits associated with balanced funds are listed below:

Tax savings: Investment banks can move between stocks and bonds using this allocation scheme without having to charge their customers income taxes. Shareholders would be liable for income tax on any transfers between funds. If the customers chose to withdraw from debt funds within 36 months of registration, there may have been a taxation of 30%.

Protection against inflation: Hybrid funds may be used as an investment tool because they include debt securities. Global bonds give investors access to countries that have not been affected by inflation, which can protect them from it. Diversification of a portfolio protects against an ongoing rise in market prices.

Risk response: Making investments in financial instruments comes with risks. However, the risk associated with equity funds is mitigated by the debt instruments included in hybrid funds. Investing in balanced funds, which provide steady returns over time, is another option.

Rebalancing of assets: There are instances in which the debt market is outperforming the equity market and vice versa. Hybrid funds let investors diversify their investments across two different asset classes in order to minimise possible losses in such cases.

Disadvantages of Balanced Funds

The disadvantages of balanced mutual funds are as follows:

1. International equities can add a significant degree of diversity. However, popular balanced funds often ignore foreign equities, which make up almost half of the world's market value.
2. Over long periods, large equities, which dominate balanced funds, offer lower returns than low- and medium-sized stocks, which are more volatile. Due to this, your returns might not be as high as they could have turned out with greater company size diversification.

Who Can Make Investments in Balanced Funds?

Balanced funds can be considered by the following kind of investors:

1. New investors: Investors who are putting their money into mutual funds for the very first time tend to turn to ELSS due to the tax benefits it offers. Apart from the tax benefits that ELSS offers, balanced funds are ideal investment options for new investors. This is because both equity and debt instruments are balanced in their portfolio, thereby ensuring that investors can watch their investment record reasonable growth whilst keeping their principal investment amount protected.
2. Conservative investors: Balanced funds are great options for conservative investors like retired people and those who want a long-term safe haven investment instrument. The reason why a large number of such investors consider balanced funds is due to the fact that they follow a balanced strategy which enables them to get the best possible outcome regardless of whether or not bond or equities markets are affected.
3. Investors who want better returns than investments in debt funds: Debt funds tend to provide returns of around 10% on average, but some investors don't mind taking on some additional risk, albeit marginal, to earn considerably higher returns. If you are one of these investors, balanced funds can work out to be very profitable.

Top Balanced Mutual Funds in India

The top five balanced funds in India in 2024 are as follows:

Quant Absolute Fund

The Quant Absolute Fund Direct-Growth is an aggressive hybrid mutual fund with an expense ratio of 0.75%. This fund is allocated 78.14% to equity and 19.34% to debt at the moment.

The last year's Quant Absolute Fund Direct-Growth returns were 30.70%. It has produced 18.28% average annual returns since its introduction. The sectors that receive the majority of the equity investment from this fund are energy, healthcare, finance, metals and mining, and consumer staples.

ICICI Prudential Equity & Debt Fund

The ICICI Prudential Equity & Debt Fund Direct-Growth, an aggressive hybrid mutual fund, was founded on 1 January 2013. At 1.07%, the fund's expense ratio is higher than the majority of other aggressive hybrid funds.

The sectors of healthcare, finance, automotive, and communication make up the majority of the fund's equity holdings. In comparison to other funds in the category, it has a lower exposure to the energy and financial sectors.

The fund has been allocated 71.19% to equity and 17.92% to debt. Last year, the ICICI Prudential Equity & Debt Fund Direct-Growth had returns of 33.97%.

UTI Aggressive Hybrid Fund

Over the past five years, the UTI Aggressive Hybrid Fund has produced the highest return among all aggressive hybrid funds. As of 31 December 2023, the fund's assets under management (AUM) totalled Rs.5,215 crore, making it a medium-sized fund within its category.

The growth returns over the last year for this fund are 28.69%. Every four years, the fund grows by twofold the amount invested in it. The sectors in which the fund's equity is mainly invested are finance, healthcare, automobile, technology, and energy. Its exposure to the financial and automobile sectors is lower than that of other funds in the same category.

HDFC Retirement Savings Fund - Hybrid Equity Plan

One of the best in its category at producing steady returns is the HDFC Retirement Savings Fund - Hybrid Equity Plan. It was launched on 5 February 2016 and currently allocates 71.12% to equity and 19.53% to debt.

The AUM of this fund stands at Rs.1,273 crore as of 31 December 2023. The HDFC Retirement Savings Fund - Hybrid Equity Plan Direct-Growth generated returns of 30.31% last year. The average annual return of this fund stands at 18.04%.

It makes investments mainly in automobile, capital goods, health care, finance, and technology sectors. State Bank of India, GOI, and HDFC Bank Ltd. are some of its top holdings.

Kotak Equity Hybrid Fund

In the Aggressive Hybrid category, the Kotak Equity Hybrid Fund has experienced the highest AUM growth over the past 12 months. Founded on 1 November 2014, it an expense ratio of 0.47%. This fund has been allocated 70.10% to equity and 27.90% to debt currently.

The direct growth returns on Kotak Equity Hybrid Fund over the last year have been 25.24%. The sectors of energy, finance, technology, automobile, and materials comprise the majority of the equity portion of the fund. Its exposure to the financial and automobile sectors is lower than that of other funds in the same category.

Taxation of Balanced Funds

Equity-oriented balanced funds and debt-oriented balanced funds are subject to different taxation laws based on portfolio composition. Laws applicable to equity mutual funds shall apply to equity-oriented mutual funds, while debt-oriented balanced funds will be subject to non-equity investment laws.

1. Taxation of Equity-Oriented Balanced Funds: 
   1. Under the current tax laws, investments made in equity-oriented balanced funds for a period of less than one year from the date on which the units are allocated, will be considered as short-term investments.
2. Taxation of Debt-Oriented Balanced Funds
   1. If the units of a debt-oriented balanced fund are switched or redeemed before the end of three years from the date on which they were allotted, the profit made through them will be subject to short-term capital gains.

Points to Remember before Investing in Balanced Funds

You must be informed about the risks associated with hybrid funds if you wish to participate in them. Thus, you should be prepared to handle all of the risks associated with owning securities and stock.

While equity-oriented funds could be suitable for investors with a healthy risk appetite, borrowing funds might be ideal for conservative investors. Make sure to understand the kind of hybrid fund you decide to invest in so that you can make tax plans. In the end, a higher-returning mutual fund would be preferred by an investor.

The decision may be impacted by three factors:

1. The life objectives of an investor
2. Understanding equity investment
3. Investment goals

Before choosing an investment portfolio, an investor must determine what their personal life goals are. Each scheme is unique and serves a different purpose from the others.

Disclaimer

Mutual Fund investments will be subject to market risks. Any mutual fund listed in the document does not guarantee fund performance or its underlying creditworthiness. Do read the mutual fund document thoroughly before investing. Specific investment needs and other factors have to be taken into account while designing a mutual fund portfolio.