Balanced funds, with 5-10% returns, remain attractive

Negative returns from equity markets in the last one year have prompted investors to invest into balanced funds.

Negative returns from equity markets in the last one year have prompted investors to invest into balanced funds. Interest rate cuts and smart stock selection have resulted in the balanced fund category giving returns in the range of 5-10% in the last one year.

With rising participation from retail investors and positive returns, flows in the balanced fund category have witnessed huge increase in the last one year. ICICI Prudential Balanced Advantage Fund’s assets under management (AUMs) at the end of November stood at R10,160.32 crore, up by R5,439.15 crore as compared to R4,721.16 crore in November 2014. Tata Balanced Fund and HDFC Balanced Fund saw their assets soar by over R3,600 crore and R1,900 crore, respectively, as on November 2015 compared to last November.

“There have been bouts of volatility from the beginning of the year, due to which we have been recommending our investors to invest in balanced advantage funds to benefit out of volatility. Our efforts to move investors away from investing in products based on short-term performance into selecting products based on concept and market view have paid off,” said Manish Gunwani, deputy CIO, equity, at ICICI Prudential Mutual Fund.

Balanced funds usually invest in a mix of equity and debt. Several funds have aggressive equity component which can generate extra return for investors. These funds typically invest over 65% of their corpus in equity and the remaining in debt and cash. There are funds which follow the asset allocation model to generate lower volatility returns.

“The fund increases allocation to equities when the market offers opportunities and books profits when the markets are rising. The fund invests in a blend of large and midcap stocks out of which large caps constitute 50%,” Gunwani said.

A number of financial planners and distributors suggest first time investors to start investing in mutual funds, especially balanced mutual funds, as they are less volatile compared to other diversified equity schemes. In last few months, having active debt exposure has also helped balanced funds deliver positive returns.

Vidya Bala, head of mutual funds research at, said: “It’s always ideal for first time investors and in 2015 we saw many new investors coming into mutual funds through balanced funds. Apart from that, such funds protect downside during volatile times.”

Having a strong run in 2015, balanced funds can continue to remain important and integral part of investors portfolio, irrespective of bull or bear markets.

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