Balanced Mutual Fund

Balanced Mutual Fund

A balanced mutual fund is a form of hybrid fund that includes stocks, bonds, and even a market component in a single scheme. Essentially, it’s a mix of both equity and debt, making this scheme more balanced. Hence the name. 

What is a Balanced Mutual Fund? 

 A balanced mutual fund contains both stock and bond components, typically in the ratio of 70% and 30% respectively. Stocks are usually a very volatile market but provide greater rewards. However, bonds are the opposite. They offer decent but stable returns and a fixed ROI, which can outperform even when stocks performs poorly. 

Understanding a Balanced Mutual Fund 

A balanced mutual fund is a form of hybrid fund scheme as it includes two or more asset classes. It is a very popular choice among new investors as it has fewer risk factors and tends to provide a mixture of safety, income and growth. However, the value of each asset class doesn’t change over time, which is in stark contrast to life-cycle bonds, where the value can indeed change to lower any possible risk factors that may arise as it approaches the maturity date. Hence, the name life-cycle, as the values cycle through and change. You don’t get such benefits with a balanced mutual fund, but then again you also don’t get such rewards with life-cycle bonds. Both balanced mutual funds and life cycle funds have their set of pros and cons. 

Advantages of a Balanced Mutual Fund 

Here are some of the ways a balanced mutual fund can benefit an investor in the long run. 

  • Funds Rebalancing 

It’s not uncommon to see overvaluation of the equity market as opposed to debt, and the reverse is also known to happen. If that were to happen when your investment is in the market, a fund manager rebalances the two assets of your investment and weed out any risk factors that could appear in the near future. 

  • Lowers Possible Risk Factors 

The stock market is very prone to risks, and since stocks comprise the highest percentage of your balanced mutual fund investment, there is a big risk factor associated with it. However, the fixed ROI and stability of the bond allow the investor to even out for any dips in stock prices that may happen due to market fluctuations. This helps lower possible risk factors. 

  • Allows for Investment Portfolio Diversification 

The balanced mutual fund scheme is an excellent way of diversification of your investment portfolio, thanks to its dual asset benefits. 

  • Protection against Inflation 

Due to the dual nature of the scheme, balanced mutual funds are protected against inflation as the bond can generate a solid and fixed ROI, which will protect your investment against short-term inflations. 

  • Tax Implications 

Almost all capital gains are taxed and the balanced mutual fund is no different, but the tax implications are slightly different depending on: 

  1. Equity-based Balanced Mutual Funds Scheme: The tax implications on an equity-based balanced mutual funds scheme is just how you would expect on any other equity funds. This essentially means any capital gains that you earn for a minimum of 1 year holding period are tax-free, so long as it is under $1,220 approximately. However, once this limit is exceeded, a 10% tax will be levied. 
  1. Debt-based Balanced Mutual Funds Scheme: The tax implications on a debt-based balanced mutual funds scheme is just like how you would find in any other debt fund. So, this scheme will be taxed according to the appropriate tax slab. 

Drawbacks of Balanced Mutual Fund 

An investor is not in control of the asset allocation. It’s the funds that decide the asset allocation. Usually, a 70% stock and 30% bond ratio is used for asset allocation, but that can change depending on the funds. This ratio may not always fit well with the investor’s goals and requirements, but they can do nothing about it. 

Example of a Balanced Mutual Fund 

VBIAX, short for Vanguard Balanced Index Fund Admiral Shares is an example of a balanced mutual fund that has a higher-than-average reward system while having a lower-than-average risk factor. This scheme’s asset allocation is in the ratio of 60% and 40% for stocks and bonds respectively. The higher bond ratio is what allows the scheme to have lower risks. 

Frequently Asked Questions

A balanced mutual fund allows the investor to gain a healthy sum from the stocks soaring while the bonds will protect the investment in case there’s a sudden dip in the valuation of the stocks. 

If you are an early investor who’s not looking for those “high reward with risk” schemes, then a balanced mutual fund could be an excellent choice. You stand to gain whenever the valuation of the stocks rises without risking too much when the stocks dip. 

The one major disadvantage of balanced mutual funds is that the investor is not in control of the asset allocation. Usually, the ratio of the asset allocation is around 70% and 30% for stocks and bonds respectively. However, that could turn in your favour by becoming 60% and 40% or get significantly worse. This is completely out of the control of an investor and that may not be what that investor was looking for in the first place. On top of that, individuals who are looking for tax-free investments may not be completely happy with it. That’s because while it does allow for some tax exemptions, it is not completely exempted from them and has its limitations. So, such individuals will have to look elsewhere if they want better tax shielding. 

Some of the benefits of balanced mutual funds are: 

  • A scheme that is balanced in terms of growth and risk factors. 
  • Allows for lower expense ratios. 
  • Relatively lower volatility. 
  • Lower risk factors. 

If you are looking for a long-term investment that has some decently high returns while having a relatively lower risk factor, then investing in balanced mutual funds sounds like an excellent investment option. However, if you are looking for tax shielding or short-term high cash flow investment, you may not be very happy with a balanced mutual funds investment. 

    Read the Latest Market Journal

    Weekly Updates 26/2/24 – 1/3/24

    Published on Feb 28, 2024 51 

    This weekly update is designed to help you stay informed and relate economic and company...

    All-in-One Guide to Investing in China via ETFs

    Published on Feb 27, 2024 289 

    Start trading on POEMS! Open a free account here! Why China? In the vast landscape...

    Navigating the Post-Inflation Landscape in 2024: Top 10 US Markets Key Events to Look out for

    Published on Feb 23, 2024 323 

    Start trading on POEMS! Open a free account here! In 2023, the United States experienced...

    From Boom to Bust: Lessons from the Barings Bank Collapse

    Published on Feb 23, 2024 60 

    Barings Bank was one of the oldest merchant banks in England with a long history...

    Decoding FX CFD 2.0

    Published on Feb 20, 2024 66 

    This article is aimed at availing information and knowledge essential to intermediate forex traders. It...

    Weekly Updates 19/2/24 – 23/2/24

    Published on Feb 19, 2024 89 

    This weekly update is designed to help you stay informed and relate economic and company...

    Unlock Prosperity with 5 Sure-Fire Financial Instruments!

    Published on Feb 14, 2024 197 

    In Singapore, the concept of guaranteed returns may evoke the spirit of prosperity, reminiscent perhaps...

    Weekly Updates 12/2/24 –16/2/24

    Published on Feb 13, 2024 70 

    This weekly update is designed to help you stay informed and relate economic and company...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066