What is the difference between a blend fund and a balanced fund?

By Investopedia Staff AAA
A:

As both "blend"and "balanced" describe the particular asset mix of mutual funds, determining the exact distinctions between the two can be difficult.

Blend funds, which contain only stocks and no fixed-income securities, are a type of equity fund that holds a mix of both growth stock and value stock. The goal of these funds is to appreciate in value by means of capital gains achieved through the following:

1) The future appreciation in share price of value stocks - Portfolio managers consider these types of shares undervalued and expect a future appreciation in stock price once the market realizes these stocks' true value. (For a closer look at value investing, check out this tutorial.)

2) The appreciation in share price of growth stocks - Portfolio managers believe these stocks have a large potential for rapid growth in earnings. (For a look at this style of stock picking strategy, check out this tutorial.)

Blend funds can also be further categorized according to their specialization in small, medium or large-cap stocks. There is a higher risk associated with blend funds as their primary investment is in the stock market.

Balanced funds are a type of asset allocation fund that contains a mix of fixed-income instruments and equities. The asset mix is usually constrained to fixed proportions. For example, a fund could have an asset mix consisting of 40% equities, 50% bonds, and 10% money market instruments. The goal of balanced funds is to achieve both growth in value and consistent income.

Depending on the type of portfolio management, balanced funds will be either re-balanced every year in order to return the proportions back to their original state or restructured to favor market conditions. For more on re-balancing a portfolio, see the article "Maintaining Your Mutual Fund Equilibrium."

As bond and equity markets do not move together, balanced funds use diversification to allow individuals to participate in market gains without the substantial risks involved with pure equity funds. If the stock market is tanking, odds are the bond market will remain relatively stable or maintain an upward trend. Thus, if the equity portion of an investor's balanced fund is performing poorly, the fixed-income portion will continue to perform well or maintain its value. The balanced fund, therefore, does not lose as much value as a blend fund when the equity markets are performing poorly. For more on different types of funds, check out this tutorial.

RELATED FAQS

  1. What is the minimum amount of money that I can invest in a mutual fund?

    Learn about investing in mutual funds even with a smaller initial investment; there are many funds available to investors ...
  2. What does a mutual fund's beta coefficient measure?

    Evaluate the risk associated with a particular mutual fund by determining its beta coefficient, which illustrates the fund's ...
  3. How can I get a mutual fund prospectus?

    Read and understand the prospectus before investing in a mutual fund. You can obtain a copy from the fund company, your financial ...
  4. Can I purchase mutual funds for my IRA?

    Learn how to invest your IRA assets in mutual funds. Discover a few of the different types of mutual funds available for ...
RELATED TERMS
  1. Discretionary Investment Management

    A form of investment management in which buy and sell decisions ...
  2. Account Minimum

    The minimum balance required to be maintained in an investment ...
  3. Capital Growth

    The increase in value of an asset or investment over time. It ...
  4. Absolute Percentage Growth

    An increase in the value of an asset or account expressed in ...
  5. Historic Pricing

    A method for calculating the value of an asset using the last ...
  6. Gold IRA

    Definition of Gold IRA
Related Articles
  1. How Does Janus's Fund Lineup Look Now?
    Investing Basics

    How Does Janus's Fund Lineup Look Now?

  2. Thank You, Pimco: BlackRock Drops Bond-Fund ...
    Investing Basics

    Thank You, Pimco: BlackRock Drops Bond-Fund ...

  3. What Bill Gross's Arrival Means To Janus ...
    Mutual Funds & ETFs

    What Bill Gross's Arrival Means To Janus ...

  4. The Most Common Roth IRA Investments
    Retirement

    The Most Common Roth IRA Investments

  5. The Key Differences Between ETFs And ...
    Investing Basics

    The Key Differences Between ETFs And ...

Trading Center