The Hindu Business Line : Balanced funds

THE asset management industry in India does not talk about balanced funds these days with the same enthusiasm as it used to till recently. These funds, by definition, marry the best of debt and equity, their portfolios comprising both asset classes in fair proportions.

Balanced funds can appeal to those who wish to get the best of both worlds; in a way, these can be used to fine-tune one's asset allocation strategy.

For some reason, fund houses do not actively urge investors to consider balanced schemes any more. They used to at a time when there were not so many other alternatives available for the investor. Somewhere down the line, however, the trend tapered off.

One of the reasons why this happened was the sudden rise of monthly income plans and their variants. The latter too combine equity with debt; as things stand, MIPs are in a class of their own, enticing investors with an altogether new pitch.

Balanced funds, just going by the numbers they have turned out till date, have not done too badlyHowever, as any investor will point out, their recent performance has not been so satisfactory - investments in debt have seriously brought down overall returns.

This, of course, holds true for practically all sorts of debt investments. Simply consider the returns provided by bond funds and you will know how debt has performed.

Do these funds have a future? Yes, if you consider what some sections believe. A balanced product, they point out, is appropriate for investors who (depending on their risk profile) are comfortable with equity and debt, all of it in a single scheme.

It is also pointed out that fund houses have lately come up with schemes that are balanced in nature, thanks to the kind of allocation policies they seek to follow. And not all of them carry the `balanced' tag either.

Take, for instance, the children's plans, managed by the likes of Prudential ICICI or Principal PNB. The schemes in question - Pru ICICI Child Care and Principal Child Benefit - invest across asset classes. Equities have in recent times played a dominant role in their portfolios. The Pru ICICI scheme, incidentally, has lately carried a significant amount of cash as well.

It may be mentioned here that some of the hybrid funds that exist in the market are debt-oriented as well, although these are not too many in number. Such funds, MF circles suggest, may be seen as relatively safer options as the dependence on equities is lower in this case.

Escorts Income Bond, with its high exposure to debt instruments, figures in this set of schemes. Talking of asset allocation, the list of funds that stick to `AA' processes seems to be getting longer. Just check out such new-generation products as Deutsche Investment Opportunities or SBI Magnum NRI Investment Flexi Asset. Both were launched early this year. One has a distinct feeling that more such products will be introduced in the days ahead by fund houses eager to provide a wider range of alternatives. And these will only add to the choices that are already available.

Feedback may be sent to blcal@vsnl.com

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