Balanced Funds: The Best of Both Worlds

A balanced fund holds both shares and fixed income in a single unit trust. It blends the growth potential of equity funds with the steadier income of income funds — all managed for you inside one fund.

The idea is balance: when the stock market falls, the fixed income portion cushions the blow; when shares rise, you still share in the growth. It's a one-stop option for investors who want exposure to the Colombo Stock Exchange without putting everything into shares.

How the mix works

A balanced fund splits your money between two engines:

• Equities — shares listed on the Colombo Stock Exchange, for growth.
• Fixed income — government securities and corporate or bank debt, for stability and income.

The exact split is set by the fund's mandate and actively managed by the fund manager. Some balanced funds target a roughly 60% shares / 40% fixed income mix as a starting point, then tilt towards fixed income when the manager wants to protect capital, or towards equities when the outlook is positive.

Importantly, "balanced" is not a fixed standard in Sri Lanka. Some funds labelled balanced run much heavier on equity than a 60/40 split. So before investing, always check the specific fund's mandate and its current allocation rather than assuming.

Where it sits on the risk ladder

A balanced fund sits between an income fund and a pure equity fund:

• Lower risk than an all-equity fund, because the fixed income portion smooths out some of the volatility.
• Higher risk than an income or money market fund, because it still holds a meaningful amount of shares and can fall in value.

Because of that equity exposure, Sri Lankan managers generally still classify balanced funds as higher risk and recommend a horizon of at least three years.

Who it suits

Balanced funds suit investors who want growth and stability in one place and prefer not to manage the split between shares and bonds themselves. They're a practical middle option for medium-to-long-term goals — more growth potential than a pure income fund, but a smoother ride than a pure equity fund.