But it is also important to understand that there is no way to pursue the rewards of investing without enduring the risks of price fluctuations that can be both severe and unpredictable.

Action Plan

Recognizing that market volatility is an inescapable part of investing, one can only strive to moderate volatility of the portfolio by choosing a mix of assets, stocks, bonds, and short term instruments. The easiest and indisputably the best way is to take shelter in mutual funds that invest in these asset classes. With two thirds of the fund managers beating the market in 1998, there isample reason to favour funds.

For an average investor, a balanced mix may be the best way to combat volatility. A balanced mix means you won't earn the peak return from any one type of asset, but at the same time, you won't end up putting all your eggs in the basket that takes the biggest fall. Returns on each type of assets can vary considerably from year to year, but they don't usually move up and down in lockstep.

When stocks fall, bond prices may hold steady or rise. And cash investments add stability that is vital for emergency savings. So gains from one asset can cushion decline in the other. Another big advantage of balanced portfolio is that it can help you keep your cool.

During a sharp decline in stocks, for example, it can be comforting to see that your bonds or cash investments are holding up relatively well.

However, it is rather unfortunate that the balanced segment is still not big enough. If we consider only open-end funds, for these are the ones available for sale, there are justaround seven balanced funds having a combined corpus of not more than Rs 350 crore. Of course, that is excluding the over Rs 20,000 under Unit Scheme '64 which was conceived as a balanced fund but has lost its identity as one.

At the same time, there are a fairly large number of equity funds, debt funds and liquidity funds through which investors can create a balanced portfolio. A balanced portfolio can do wonders. The accompanying table gives an insight.

Here are some funds from which you can choose.

Best Balanced Funds

Alliance '95: Alliance '95 offers dividend and growth plan and seeks capital appreciation and current income from a portfolio of equity and fixed income instruments. Alliance '95 has been the top performing balanced fund in 1998.

The fund has a 60 per cent exposure to stocks and 30 per cent to debt while 10 per cent in other instruments including current assets. Launched in January, 1995, the fund has witnessed a spectacular growth since 1997, after sluggishperformance in the initial two years. The actively managed fund invests in aggressive growth stocks.

Currently, the fund still has a dominant position in the software sector with 11 software stocks in the portfolio accounting for 21 per cent of net assets. The fund also remains bullish on the pharmaceutical sector and holds 6 stocks constituting over 10 per cent of the investible resources.

The debt component is of good quality and provides reasonable stability to the fund.

Tata Young citizens Fund: Tata Young Citizen's Fund essentially seeks long term capital appreciation. Launched in October, 1995, the fund went open-end recently. The fund strictly maintains a 50:50 equity-debt ratio. Substantial debt allocation has helped the fund sustain its performance in a falling market.

Last year, the fund realigned its portfolio in favour of FMCG, software and pharma scrips and has posted steady returns ever since. The fund has the highest exposure to the pharmaceutical sector and FMCG stocksaccounting for around 31 per cent and 29 per cent of equities, respectively. Software stocks account for another 22 per cent. In the past one year, the fund has given a return of 21.14 per cent and has been the second best in its category. The fund is available on ano-load basis.

Growth Funds

Birla Advantage: Birla Advantage Fund (BAF) has been on top of the performance table for most of 1998. In calendar 1998, the fund posted an astronomical return of 52.49 per cent. The fund invests in stocks with visible earnings growth.

The fund follows a bottom up approach and sector allocations are incidental, says the fund manager. However, its noteworthy that the fund is deployed in stocks belonging to four sectors - pharma, fast-moving consumer goods, software and tractors. Exposure to pharma stocks has gone up substantially from 22 per cent in September, 1998 to 39 per cent in December.

On the contrary, the exposure to software sector is down from 41 per cent in June, 1999 to 14 per cent now. Withan aggressive growth oriented portfolio, BAF must continue to outsmart its peers. BAF is an open-end fund and is sold at NAV.

Kothari Pioneer Infotech: Kothari Pioneer Infotech Fund is the first domestic fund dedicated to the information technology sector. Launched in August, 1998, the fund has put up stupendous performance since launch.

The NAV of the fund is currently at Rs 15.22 which is a gain of over 50 per cent in less than five months. The fund currently holds 12 infotech stocks which constitute 96 per cent of net assets.

With the infotech stocks posting better than expected results, the fund has been gaining rapidly in the past couple of days. The growth potential of the information technology sector seems bright and the fund is expected to continue with its outperformance.

Best Income Funds

Prudential ICICI Income Plan: Prudential ICICI Income Plan seeks regular return. Launched in June, 1998, the fund has been able to generate reasonable returns while maintaining high creditquality. In the past quarter, the fund has increased the average maturity of the portfolio from 9 months to 22 months.

This has helped the fund enhance returns. In the past quarter, the income plan has posted a return of over 11.6 per cent. About 56 per cent of the fund is deployed in corporate debentures, largely investment grade. About 6 per cent is in dated government securities and the rest in commercial papers.

Though the returns from this fund may be marginally lower than a few other open-end income funds, the credit quality of the portfolio makes the fund far more attractive. The fund is sold on a no load basis, though a 0.5 per cent exit load is charged on redemptions within 6 months.

Kothari Pioneer Income Builder: Kothari Pioneer income builder is also offered in two flavours - dividend and growth. The fund has been a consistent performer since launch. In the past one year, the fund has posted a return of 12.69 per cent and 11.83 per cent, respectively. The fund is predominantlydeployed in debt instruments with corporate debt accounting for over 90 per cent of net assets. The yield to maturity of the fund is 13.94 per cent and the average maturity period is 1.66 years. The credit quality of the portfolio is unlikely to deteriorate and the fund should generate stable returns.

Besides, there are short term debt funds for liquidity management. However, returns from these funds do not vary drastically and hence one should consider the exit load charged by these funds while investing.

-- Value Research