Balanced Funds vs Equity Fund - Which One Is Best for You

Balanced Funds vs Equity Fund – Which One Is Best for You

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Equity Funds

Equity funds are mutual funds or one can also say private investment fund that invests totally into equities. The fund invests money to acquire possession in businesses that will show growth; therefore the term “equity” comes from there. The core purpose of the fund is capital appreciation. The fund involves a higher level of threat to instability. There are various types of funds available in the market, the most commonly known are Mid-cap funds, Index funds, Large-cap funds, and Multi-cap fund etc. These funds are completely handled by skilled and experienced fund managers, Balanced Funds vs Equity Fund – Which One Is Best for You

Benefits of Equity Funds

  • The Equity Mutual Funds diversify its portfolio to reduce the chances of risk by diversifying to different stocks rather than to a single stock. The disclosure to a particular stock is limited to 5% mostly.
  • The Equity Mutual Funds have tax-free investment benefits if invested for a period of one or more years.
  • The Equity Mutual Funds are mostly traded on a regular basis which results in the investments to be highly liquid. This enables to an effortless and easy redemption of the investments.

Balanced Funds

Balanced Funds are those types of Mutual funds which is a one-stop solution for investment in a mix of stocks and bonds. Hence is also termed as a hybrid fund. The balanced funds are designed to provide a blend of profit, safety and capital appreciation to the investors in a single portfolio. There are two types of balanced funds equity oriented and debt oriented funds. As the names suggest the equity oriented fund invests around 60-80% of the assets in equities and the remaining in debt funds whereas in debt oriented a higher proportion is invested into debts.

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Benefits of Balanced Funds

  • The Balanced Funds have added stability as compared to equity funds because the profits from the equities and bonds are optimistically linked and the market instability doesn’t affect the prices of the bonds.
  • The portfolio offers tax benefits after an investment phase of one year or more, because of more than 65% of investment in equities. Whereas the debt-oriented funds offer tax benefits up to 3 years and 20% for investments period of more than 3 years.
  • The hybrid fund offers a risk-free investment option due to the investments in a mix of equities and debt. The market instability has a very low effect on balanced funds as compared to equity funds.

The balanced as well as Equity funds both have diverse kind of outlook towards investors but share a similar type of strategy for investments. The only distinctive factor that creates a difference between balanced and equity funds are the risk and stability. Where on one hand equity fund offers full exposure to equities and as a result, it receives complete profits during the bull period but also has higher levels of risk during the bear period of the market. It is advisable to confirm the equity and assets mix of the balanced fund portfolio before investing because all the composition of the equity in a portfolio causes all the difference.

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