What are Balanced Funds?

Published on September 26, 2025 | 3 min read

New hybrid mutual fund classification rules 2026

The mutual fund industry experienced remarkable growth post-pandemic, with the active mutual fund investors increasing from around 3.1 crore in FY20 to over 11 crore in FY25. The Ministry of Finance reported approximately 5.9 crore mutual fund investors at the end of December 2025, while average monthly SIP flows increased sevenfold from ₹4,000 crore in FY17 to over ₹28,000 crore in FY26.

While many investors are shifting from traditional investments like real estate and physical gold to mutual funds, some are still hesitant due to their lack of experience and the volatility of equity markets. To offer growth opportunities for investors with a moderate risk appetite, balanced mutual funds were introduced.

In this article, you will understand what balanced funds are, their advantages and disadvantages, and the top balanced funds in India.

What Are Balanced Funds?

Balanced funds are a type of hybrid mutual fund that invests in both equity and debt markets in a specific proportion. These funds offer capital appreciation and stability through portfolio diversification, and help maximise returns by balancing the risk-reward ratio.

Open FREE Demat Account within minutes!

Join now

In the past decade, balanced funds delivered an average return of 8.35% on investments, attracting investors seeking stable returns. Balanced funds are typically equity-oriented with 40–60% of the fund invested in the equity market.

There are two types of Balanced Funds:

Equity-oriented Balanced Funds: These funds invest at least 65% of their assets in equity markets to offer capital appreciation, and the remaining 35% allocated to the debt market.
Debt-oriented Balanced Funds: These funds invest a minimum of 65% of their assets in debt markets to provide stability and minimize volatility, with the remaining 35% allocated to equity markets.

Top Balanced Funds Based on AUM & CAGR

Balanced funds feature both capital appreciation by equity investments and debt instruments to provide stability. Let’s explore the top Balanced Funds based on AUM, Expense Ratio, and 5 Year CAGR.

Name	AUM (Cr)	Exp Ratio (%)	5Y CAGR
HDFC Balanced Advantage Fund	1,07,589.67	0.77	16.70%
Baroda BNP Paribas Balanced Advantage Fund	4,766.56	0.75	11.54%
Axis Balanced Advantage Fund	3,799.23	0.73	11.39%
ICICI Pru Balanced Advantage Fund	71,150.75	0.86	11.29%
Aditya Birla SL Balanced Advantage Fund	9,103.69	0.66	11.08%
Nippon India Balanced Advantage Fund	9,687.94	0.56	10.87%
Bank of India Balanced Advantage Fund	147.85	1.15	10.79%
Tata Balanced Adv Fund	9,604.33	0.51	10.22%
ITI Balanced Advantage Fund	379.18	0.65	9.89%
Kotak Balanced Advantage Fund	17,590.57	0.57	9.75%

Data as on 25th March, 2026.
Source: Tickertape

Advantages of Balanced Funds

Balanced funds diversify your portfolio to minimize risk and maximise potenrial returns, offering stability. The following are the advantages of investing in balanced funds.

Portfolio Diversification

Since a balanced fund invests in both equity and debt markets, it offers portfolio diversification that reduces overall investment risk. Traditionally, equity and debt have an inverse relationship: when equity markets decline, bond markets rise.

Professional Fund Managers

Seasoned fund managers with a good track record of profitable investment manage the balanced mutual funds. These fund managers are responsible for handling the fund’s investment so you can earn returns without actively managing your investments.

Automatic Rebalancing

Depending on market conditions, fund managers adjust and rebalance the fund allocation between debt and equity to maintain the target asset mix and prevent the portfolio from excessive risk.

Less Risky Than Pure Equity Funds

As balanced funds invest in a mix of equity and debt segments to offer stable returns and rebalance their allocation according to market conditions, they are less risky than pure equity funds.

Capital Appreciation & Stability

By investing in both equity and debt markets, balanced funds provide capital appreciation and stability for investors with a moderate risk appetite.

Disadvantages of Balanced Funds

Though balanced funds carry moderate risk and offer stable growth, there are some disadvantages you must consider before investing.

Underperformance In Bull Markets

Since a portion of the balance fund is invested in debt markets, these funds often tend to underperform compared to pure equity funds during bull markets.

Higher Expense Ratio

Balanced funds are actively managed as their asset allocation is rebalanced to match the target asset mix and manage risk; they often have a higher expense ratio, which decreases your overall return.

Unfavourable Changes in Interest Rates

The debt portion of a balanced fund is highly sensitive to changes in interest rates. If the RBI increases the interest rate, the value of the existing bonds may fall, decreasing the fund’s overall value.

Limited Exposure to High-Growth Stocks

Since these funds often invest in safer, stable large-cap stocks to limit the risk, they miss out on mid and small-cap stocks with high-growth potential.

Balanced funds invest in both equity and debt segments to offer capital appreciation and stability to investors with moderate risk tolerance seeking a dual benefit. However, balanced funds delivered an average return of 8.35% in the past 10 years, beating inflation. Thus, select a balanced fund with a competent fund manager, less expenses ratio, a high AUM (Asset Under Management), and an inflation-beating 5-year CAGR.

About Author

Mariyam Sara

Sub-Editor

holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.