The Hindu Business Line : Kotak Balance: Hold

Investors can retain their units in Kotak Balance. The fund's three-year return of close to 40 per cent has comfortably outpaced its benchmark, Crisil Balanced Fund Index and also fared better than a number of peers.

Kotak Balance has emerged as a relatively aggressive fund in its category. While the risk has been compensated by its return during the bull market, the fund appears to reflect higher volatility than its peers, during the recent market correction.

Suitability: Kotak Balance may prove to be a relatively high-risk fund for first-time investors looking for an equity debt balance. Actively churning stocks and sectors, the fund now has just 30 per cent of the stocks it had in the portfolio at the beginning of 2006.

HDFC Prudence or FT India Balanced are better options for investors looking for stability. These funds have fared better than others the category in containing volatility over the past four months.

HDFC Prudence, for instance, returned 6.5 per cent over the past six months, against the 4-5 per cent by established funds such as HDFC Equity and DSPML Opportunities. Kotak Balance just about contained negative returns in the same period. The fund has the mandate to invest up to 70 per cent in equities and has since the last Budget maintained its equity investments in the 65 per cent range in order to qualify as an equity-oriented fund. If the fund is keen to maintain the above status, it will have to hold a larger part in equity, increasing its risk grade in the category.

Performance: With a one-year return of 32 per cent, Kotak Balance has bettered the performance of another aggressive peer, Magnum Balanced. A 65:35 allocation in Kotak Opportunities and Kotak Flexi Debt (equity and debt funds respectively) would have delivered similar returns.

A balanced fund can however, score over investing separately in debt and equity funds on two counts. For one, investors are saved the hassle of re-balancing their portfolios as balanced funds ensure that the asset allocation remains within the range originally stipulated.

Two, by investing in equity-oriented balanced funds, you can get tax advantages, as long-term capital gains on equity are exempt. If you invest independently in debt and equity funds, however, you will have to bear the capital gains tax on the debt portfolio, which could depress the overall portfolio return.

Fund facts: Mr Anand Shah and Mr Ritesh Jain manage this fund, which was launched in November 1999. The NAV per unit is Rs 22.

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