Balanced funds provide investors with the convenience of buying into a single fund rather than holding both equity and bond funds. This category of funds also lowers a portfolio’s volatility, while providing higher returns than pure fixed income investments.

The fund managers also enjoy the flexibility of varying the proportion of equity and fixed income investments in response to market conditions. An upswing may prompt them to hold a relatively higher share of equity in order to maximize gains while a downturn will see them turning to fixed income investments to stem losses.

Below we will share with you three top-rated balanced mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of balanced mutual funds, their Zacks Rank and past performance.

Dodge & Cox Balanced (DODBX – Free Report) invests in both equity and debt securities. DODBX invests around 25% to 75% of the total assets in equity securities. The fund may also invest a maximum 20% of its assets in U.S. dollar-denominated securities of non-U.S. issuers traded in the country that are not on the S&P 500 Index. Dodge & Cox Balanced has a three-year annualized return of 8.5%.

DODBX has an expense ratio of 0.53% compared with the category average of 0.86%.

Mairs & Power Balanced Investor (MAPOX – Free Report) seeks current income and preservation of capital. The fund invests in U.S. common stocks as well as fixed income securities including corporate bonds and United States government securities. It may also invest in mortgage-backed securities. The fund may also invest in securities of foreign issuers represented by American Depositary Receipts or are listed on a United States stock exchange. Mairs & Power Balanced Investor has a three-year annualized return of 6.5%.

Ronald Kaliebe is one of the portfolio managers of MAPOX since 2006.