What is a Blend Fund?

The market is growing and everyone is here to reap the benefits. Equity mutual funds are seeing a surge not just in net investments but also in delivering extraordinary returns. For the uninitiated, an equity mutual fund is a combination of multiple stocks. Instead of buying stocks directly, an investor with a high-risk appetite usually can choose to invest his money in an equity fund, managed by professional fund managers. They choose investment avenues and create a perfect balance to build a portfolio that gives good returns.

However, with higher returns comes higher risks. What if you, as an investor, are looking for moderate returns in an equity mutual fund scheme without taking many risks? This is where an equity fund called a blend fund comes into play.

What is a Blend Fund?

A blend fund is, as simple as its name suggests, a type of equity mutual fund. It is a combination of growth stocks and value stocks, crafted carefully to give good returns. A blend fund offers diversification under a pool of single portfolios.

This fund selects value stocks that give consistent returns to provide a backbone to the portfolio. The value stocks are chosen to keep in mind their strong fundamentals and other factors like frequency of dividend payment and rewarding the shareholders.

The growth stocks are selected to capitalize on the profit and gains from the market movement. They are selected based on the potential of market growth, probable earnings, and profit of the company.

A blend fund offers a diversification of growth and stability in one place. They also give benefits of risk moderation found in hybrid funds and higher returns of equity schemes. Blend funds come in many configurations, and an investor must be careful while selecting the fund that best suits his risk-return appetite.

How do Blend Funds work?

Blend funds have multiple combinations of high-growth stocks and value investing stocks. A fund manager generally selects fundamental stocks that are undervalued to gain profits. At the same time, growth stocks are chosen based on the company’s future potential.

Blend funds are generally created based on market capitalization. These funds, like others, can be large-cap, mid-cap, or small-cap funds. An investor should select the best-suited blend fund as the allocation strategies may vary in different funds.

A blend fund may also be an index fund encompassing various growth and value stocks that give returns relatively after a long investment duration.

How does a Blend Fund differ from a Balanced Fund?

The sole difference between a blend fund and a balance is their asset allocation. A blend fund only invests in equity, while a balanced fund comprises fixed income securities as well as equities. The asset distribution in a balanced fund is often in a fixed ratio of multiple asset classes.

Advantages of a Blend Fund:

1. Blend funds are a good source of investment for investors with a moderate risk profile.
2. It offers the advantage of equity investment and returns similar to fixed-income securities.
3. A blend fund has both value stocks and growth stocks that control the profit even in bearish market situations.
4. Blend funds give good returns when held for a relatively long period, being a great source of passive income.

Disadvantages of a Blend Fund:

1. The growth stocks are selected on future predictions of growth potential and good profit earnings. The research might not turn out to be true in shorter terms which may affect the returns.
2. Blend funds are diversified in multiple configurations based on market capitalization, making it difficult for an investor to select the ‘right’ fund for themselves.
3. Blend funds are not a good source of investment for investors looking for an excessively high growth rate.

To put it together, blend funds are a good source of investment for investors with a moderate risk profile and looking for a good passive income in the long run. It is important to analyze your financial goals and risk profile before selecting the right type of equity fund for you.

Frequently Asked Questions

Who should avoid blend funds?

Blend funds are a good source of investment for beginner investors or investors looking for long term investment. Seasoned investors or investors with a high-risk appetite should avoid blend funds as they are known for giving moderate returns through capital appreciation and dividend income only.

Are blend funds good?

Some blend funds have given good returns in the past few years. Blend funds are good if you are looking for a passive income and find it risky to invest directly into equities.

What are some tips and techniques to invest in a blend fund?

As blend funds combine value and growth stocks, an investor should look out for stocks with appropriate asset allocation in both categories. Another point to keep in mind is the type of capitalization used to select stocks in a blend fund, as it impacts the returns. Apart from that, general lookouts like past year returns, fund managers, AMCs etc., are an added advantage to selecting a good blend fund.