The advantage of investment through a mutual fund for an inexperienced investor who has no basic level of knowledge in investment is that the professional management of your investment is delegated to the fund manager. However even so, the novice investor is still faced with the decision on the asset allocation mix in which he is comfortable with. The novice investor will still have to decide on the amount of investment that goes into a bond fund, the amount into a growth fund and so on. This is where having a balanced mutual fund portfolio comes into the picture.
The mutual balanced fund provide an alternative to novice investors who find making a decision on the asset allocation mix too much of a hassle and a painstaking effort. The following are the reasons why investing into a balanced fund is considered a viable alternative:-
1. The fund portfolio is decided and managed by the fund manager, and is spread over various asset classes. When you are invested in a growth fund or any other equity fund, the exposure is normally limited to only certain asset class. Hence, there is still a certain amount of market risk as certain asset class does better under different phases of economic, business and stock market cycles.
2. For investors who do not practice or subscribe to the dollar cost averaging strategy, preferring lump sum investment into a growth fund, there is still possibility of succumbing to greed in a bull market and fear in a bear market. Hence, these investors normally would lose out in the long run. For a balanced fund, the volatility is very much less pronounced; hence the timing of the investment is not as crucial.
3. Being less volatile, investment in this type of funds required less monitoring and minimum actions from the investor to respond to market condition and changes in personal circumstances.
4. For investors who have a portfolio of bond and equities which require an occasional rebalancing of weightings in asset allocation mix due to market conditions, a certain amount of incurrence of fees is required. For a balanced mutual fund, this rebalancing is done by the fund manager without any cost incurrence by the investors.
Statistics have shown that balanced funds are not as popular as equity funds due to the perception of the lower rate of returns during a bull run. In reality, mutual balanced funds provide investors with a viable alternative solution by providing an asset allocation mix consisting of bonds and equities, with the aim of offering investors the best of both worlds, i.e. the stability comparable to bonds and yet some elements of the capital growth potential of stocks in the long term.