Are balanced funds optimal investments?
B. Venkatesh We have in the past discussed how individual investors can use mutual funds to construct meaningful portfolios within the core-satellite framework. Such portfolios contain equity funds, fixed-maturity bond funds, PPFs, gold ETFs, fixed deposits and direct investment in equity. An investor recently wrote to us wanting to know if balanced funds can be considered within the core-satellite portfolio. This article discusses the benefits of taking exposure to balanced funds. It then explains the reasons why such funds may not sit well within the core-satellite portfolio framework. A properly crafted asset allocation policy is beneficial. The decision to allocate, say, 65 per cent to equity can contribute higher value-add to the portfolio than the decision to buy, say, BHEL and SBI shares within that equity portfolio. The problem, however, is that an individual has to periodically rebalance the portfolio to align with the asset allocation policy. And such rebalancing has high ass
