Yes, balanced funds invest in a combination of stocks and bonds, a typical mix is 60:40 in favour of stocks. Returns from balanced funds are normally lower than pure equity mutual funds when markets are rising, however if the market declines, the losses are also normally lower. Balanced funds are best suited for investors who do not plan their asset allocation and yet want to invest in equities. Buying separate equity and income funds for your portfolio also achieves the same results as buying a balanced fund. The advantage with the former option is that you can choose your own split (between stocks and bonds i.e fixed income) rather than let the fund manager decide the same.

Most private sector funds provide you the convenience of periodic purchase plans (through a Systematic Investment Plan), automatic withdrawal plans and the automatic reinvestment of dividends. You would basically need to give post-dated cheques (monthly or quarterly, periodic date of the cheque is fixed by the Asset Management Company). Most funds allow a monthly investment of as little as Rs 500 with a provision of giving 4-6 post-dated cheques and follow up later with more. Regular monthly investments are a good way to build a long-term portfolio and add discipline to your investment process.

Just as you would buy a computer that fits your needs and budget, you should choose a mutual fund that meets your risk tolerance and your risk capacity levels (i.e. has similar investment objectives as your own). Typical investment objectives of mutual funds include fixed income or equity, general equity or sector-focused, high risk or low risk, blue-chips or turnarounds, long-term or short-term liquidity focus. You can use our Find-A-Fund query module to find funds whose investment objectives match yours.

You can also read our expert article on Investment in Mutual Funds to understand how best to find a mutual fund to meet your needs and what other factors to consider while evaluating mutual funds for investment.

A 2.25% entry load sounds small. But it still bites a chunk off your returns over a long period of time. For instance, Rs 1 lakh invested directly in the no-load option of an equity fund that grows at a rate of 15% over a period of 20 years yields around Rs 16.36 lakh against Rs 15.99 lakh that a load fund would return—a difference of Rs 36,820. This is because even a small sum of 2.25% gets compounded over the years.

The pinch remains the same even in a systematic investment plan (SIP). As SIPs entail investments on a regular basis, say every month, you end up paying entry loads on all your investment instalments. Assume you had invested Rs 5,000 in Reliance Vision Fund (RVF) on January 1, 2003 through a monthly SIP. If you had withdrawn your entire investment after five years, on December 31, 2007, you would have got back Rs 11.52 lakh in the no-load option and Rs 11.25 lakh in a load option, a difference of a cool Rs 25,914.