The Hindu Business Line : ‘Balanced funds preferred in current market conditions’

Mumbai, June 16 Balanced funds and fixed maturity plans (FMPs) offered by mutual fund houses are the flavour of the season as the equity markets are fraught with volatility and price declines, say analysts.

The net asset values (NAVs) of the balanced funds have remained unaffected compared with those of equity oriented funds.

HDFC Prudence, counted among the top balanced funds, and ING’s Balanced Funds even now enjoy the high NAVs that they registered more than two months back, whereas the NAVs of most of the equity oriented funds have touched their 52-week lows.

“In the present scenario, fixed maturity plans with 100 per cent debt portfolio are doing well, and debt may even outperform equity,” said Mr R. Easwaran, Head-Retail, SBICAP Securities.

“In the short-term debt and balanced funds are better, at least when investing for a one year period; but for one to three year time horizons, equity fund should steal the show,” said Mr Easwaran.

Mutual funds have invested more in debt instruments so far this year as compared with equity.

Even during this month, to date, (June 12) mutual funds’ investment totalled Rs 1459.79 crore in debt instruments against Rs 1122.69 crore in equity, according to the SEBI data.

During the period January to May 2008 too, mutual funds had been investing more in debt instruments.

Only in January 2008 had MFs had been net sellers by Rs 4,621.80 crore in debt instruments against Rs 7,702.50 crore of net buying in equity.

“In the short-term, the market is not likely to go up much, and only large cap-oriented equity funds will perform better,” Mr Easwaran said.

“For fund houses that have balanced funds, this is the right time to market them,” said Mr Waqar Naqvi, Chief Executive, Taurus Mutual Fund.

“We don’t have a balance fund but we need one, and right now the plans are at the drawing board stage,” said Mr Naqvi adding, “We are eight-nine months away from having a balanced fund.”

“At times likes this when there is high inflation, it is time for diversification of the asset class,” said Mr U.K. Sinha, Chairman, UTI Asset Management Company Ltd.

“You have to make a very intelligent distribution of your asset allocation, depending on your needs. Even in these market conditions, some money should be put in equity and some in fixed income instruments of the mutual funds, besides in bank and insurance products,” said Mr Sinha.

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