The Hindu Business Line : Balanced funds may be handy in choppy season

THIS may be a good time to look at balanced funds, now that the equity markets are choppy and returns from pure debt options under immense pressure. Balanced funds invest both in debt and equity, a mix that is intended to stabilise their portfolios on one hand and enhance performance on the other.

These schemes, many of which are rather small in size, have not been aggressively promoted by the asset management industry for reasons quite unknown. And, as a result, they have largely remained in the backwaters.

The funds in question, however, have turned in a fairly decent performance in recent times. For those who insist on details, these have provided around 65 per cent on an average during the one-year period ended January 31. One is of course referring to funds that are generally equity oriented, some examples being Alliance 95, JM Balanced and HDFC Prudence. The latter, according to calculations done by fund tracking agency Value Research, is currently the best performing scheme; it has actually occupied the top slot for the last five years.

Considering all schemes in the category, the two- and three-year return averages are 33 per cent and 16 per cent respectively. In comparison, HDFC Prudence has managed to provide 50 per cent and 31 per cent during the two periods.

At the other end of the spectrum are products managed by the likes of ING Vysya and SBI. On a three-year scale, their performance is far from being so impressive.

Mutual fund circles suggest that many investors do not actively consider balanced products and turn them into an essential part of their holdings. An investor with a surplus of, say, Rs 1 lakh may wish to spread it over a top-performing equity fund and a top-performing debt fund. The division may not always be equal in the ratio of 50:50; it may easily be 65:35, depending on his or her perception on risk and return. However, the ideal asset allocation may also be effected in a simpler way, courtesy a good balanced fund that maintains the desired blend of equity and debt.

A wide array of options is currently available in the market but discerning investors will not have problems in choosing the best of breed. Among the larger ones are HDFC Prudence (Rs 555 crore in end-December, 2003), SBI Magnum Growth '99 (Rs 239 crore) and UTI's Unit Scheme '99 (Rs 247 crore). UTI's Unit Linked Insurance Plan, with Rs 4,420 crore, is in a league of its own.

Some of the schemes are named quite stylishly. Check out, for instance, the asset allocation variants introduced by Templeton a couple of years ago - Balanced Growth, Conservative Growth and Inflation Hedge. Or, consider the children's plans managed by HDFC or SBI. The portfolios of all these schemes are chiefly tilted towards debt.

Investors, however, should remember that a particularly heavy accent on debt is likely to influence overall returns. The average one-year performance (as on January 31) recorded by debt-oriented funds stood at 32 per cent. PNB Balanced, with a score of 67 per cent, is the top performer here. Nevertheless, its asset base is very small: Rs 1.96 crore. And that's just another instance of disconnect between performance and popularity!

Feedback may be sent to blcal@vsnl.net

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