Balanced Fund – tax advantage on debt component.

Balanced funds are those, which invest almost equally in Debt and Equity. The Debt – Equity balance in the fund changes according to the need of the situation and the fund manager decides it.

What are the Advantages of a balanced fund?

1. It gives the leverage of investing in equity while maintaining one foot on safe debt funds.

2. No steep fall as in case of pure equity funds as you have a cushion of debts.

3. Main Advantage is on tax…If Stipulated amount of Equity Proportion is maintained in a balanced fund (65%), and then it is considered as an equity fund for all taxation purposes. i.e. Dividends are not subject to dividend distribution tax.

If you invest separately in a debt fund and equity fund for balancing your portfolio, then you will have to bear tax on dividend distributed on your debt fund(s). This tax is deducted by MFs before payment. You save this portion of tax by investing in a balanced fund.

If you are averse to investing in equity funds, then Balanced Funds may be a right option for you. (3-5 year investment period).

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