A balanced fund is a pooled fund (also known as a managed fund) that combines stocks, money market instruments, and bonds in its portfolio. This ratio of equity to debt is usually fixed to a certain range, depending on the goal, complexity and flexibility of the fund.
These funds typically have an objective that is between growth and income, and can be a good option for people who are looking for an investment product that mixes moderate risk, income generation and modest capital appreciation.
Balanced funds are good for new investors because their diversified portfolio makes them less likely to be affected by conditions that would affect a single industry or asset class. The professional management characteristic of pooled funds is another reason because they practically outsource the decision-making and tactical moves of the underlying assets to full-time, expert fund managers.
Of course, suitability of a balanced fund versus other types of pooled funds (like money market, bond funds and equity funds) for you depends on your risk profile, time horizon and money goal. There are also other types of investments to consider.
Balanced fund benefits
Balanced funds usually give returns that, while not particularly high, are solid and steady. This makes such funds a good option for money goals that you absolutely must achieve, although you may need more time than an investment with higher potential risk and returns.
Another advantage of balanced funds is how they’re run. They have professional managers who do research and keep an eye on the market in order to make the right decisions on the fund’s operation. This includes what specific bonds and shares are to be included in the portfolio, and how much of them.
This means that, like other managed funds, you won’t need to involve yourself with the details. On the other hand, you also won’t have much say in the decisions.
Different types available
Different types of balanced funds are available. For example, you can choose to get a Unit Investment Trust Fund (UITF) that is a balanced fund from a bank, or put your money in a balanced mutual fund from a mutual fund.
Note a company can offer more than one balanced fund with varying components and exposures to certain asset classes, so you should look at the fund’s Key Information and Investment Disclosure Statement (KIIDS) to know the details and see if it might be right for your needs.