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Balanced fund not a legitimate category

Balanced fund not a legitimate category
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First Published: Wed, Jan 13 2010. 10 32 PM IST

Updated: Wed, Jan 13 2010. 10 32 PM IST
What is a balanced fund?
It invests in a mix of equity and debt scrips. Most of them invest at least 65% of their corpus in equities. The term “balanced fund” was coined by the Indian mutual funds industry to launch schemes that would, typically, invest in equity and debt markets in a 50:50 ratio.
What happened?
The Securities and Exchange Board of India (Sebi) and the Income-tax Act had different definitions for equity and debt products. The budget 2006 retained Sebi’s definition of having at least 65% equity exposure for equity funds.
How does it matter?
Since the Income-tax Act defined an equity fund as one with at least 51% equity exposure, balanced funds gave the equity tax benefit to investors, while investing only 55-60% in equities. After 2006, most balanced funds increased their equity exposure to around 65% to continue to give tax benefits that equity funds give.
How does life change?
Your balanced fund is no longer as balanced as before. It has become riskier. But most balanced funds do not invest beyond 70% in equities, while equity funds invest up to 95%.
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First Published: Wed, Jan 13 2010. 10 32 PM IST