Balanced and mixed funds

Balanced and mixed funds sit between pure share funds and pure fixed income funds. They hold a blend of both, so their value moves with the stock market and with interest rates, but usually not as sharply as a fund that holds only one type of asset. The exact blend is decided by the fund's rules and the person or team that manages it.

What these funds hold

A balanced or mixed fund holds company shares and fixed income assets in the same portfolio. The fixed income side can include government debt, corporate debt, and cash-like instruments. The equity side is usually company shares listed on a stock exchange.

The split between the two sides is the main feature of the fund. Some funds keep a steady split at all times. Others allow the manager to shift the split as market conditions change. The fund's own rules state which approach it uses.

Because both sides are present, the fund's return comes from two sources. One is share prices and dividends. The other is interest and repayments from the fixed income holdings. The two sources often behave differently, which is the reason for mixing them.

Who sets the mix and how it differs from single-asset funds

The mix is set by the fund's investment policy, which is written in its offer document. Within the limits of that policy, a manager or management team decides the actual holdings. The manager may adjust the mix over time if the policy allows it.

A pure equity fund holds mainly or only company shares. Its value can rise and fall sharply with the stock market. A pure fixed income fund holds mainly debt instruments and is driven by interest rates and credit quality. A balanced or mixed fund combines both, so its swings are usually smaller than a pure equity fund's but larger than a pure fixed income fund's.

The mix also affects cost and risk in ways the investor should check. A fund with more shares carries more market risk. A fund with more fixed income carries more interest rate and credit risk. Reading the fund's policy and its actual holdings shows where it sits between the two extremes.