The Hindu Business Line : FT India Balanced: Invest

Investors with moderate return expectations and looking to add some stability to their portfolio can consider investing in FT India Balanced Fund. Being an equity-oriented balanced fund, it offers an opportunity to invest partly in debt, which now appears to hold improved return potential.

Suitability: FT India Balanced returned 14 per cent over the past year ended March 2007, beating its benchmark CRISIL Balanced Fund's return of 9.6 per cent as well as a number of diversified equity funds that went through a bad patch over the period. While HDFC Prudence has delivered returns superior to FT India Balanced, the former's bias for mid-caps and aggressive portfolio churning make the latter a better option for investors with low risk appetite.

Equity-oriented balanced funds, however, may not be able to mitigate downside risks effectively any more. With regulations for such funds to hold at least 65 per cent in equity in order to be classified as equity-oriented fund for tax purposes, balanced funds are unlikely to be insulated from market declines.

Between May and June 2006, for instance, balanced funds declined slightly less than the Sensex. They, however, lost less than a good number of equity diversified funds, thanks to their debt exposure. To this extent, balanced funds may offer some protection during volatility as against diversified funds.

Performance: FT India's five-year compounded annual return of 28 per cent is lower than aggressive peers such as Magnum Balanced that managed close to 35 per cent. While most of the top balanced funds maintained larger mid-cap exposure and gained during mid-cap rallies at various periods over 2003-2005, FT India chose to have relatively lesser exposure to this segment.

The large-cap exposure has aided performance over the last year, where the rally was largely restricted to stocks in this space. The fund also reduced exposure in equity from close to 70 per cent in March 2006 to 60-65 per cent over the past nine months, and actively invested in debt.

The fund's exposure of 38 per cent in debt as of March 2007 reflects its optimism over the return potential in this space. The fund has gone for shorter maturity periods of its debt component with higher yield to maturity on the back of successive interest rate hikes. For instance, the average maturity of its debt portfolio has reduced from 3.75 years in March 2006 to 1.70 years in March 2007. Over the same period the debt portfolio's yield to maturity rose from 7 per cent to about 8.9 per cent.

Investors who allocated their money separately in Sensex and debt funds (instead of investing in FT India Balanced) in the same proportion as the fund would have earned about 9.5 per cent (without considering entry or exit costs) as against the fund's return of 11 per cent over a one year till date.

The cost of frequent entry and exit so as to re-allocate such a portfolio and the tax element involved in debt funds could dent the portfolio's return. However, such an approach may be effective during periods when equities significantly outperform debt.

FT India Balanced requires a minimum investment of Rs 5,000 under the lump-sum option and has an entry load of 2.25 per cent.

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