The Hindu Business Line : Balanced funds: Look at long record

Balanced funds, with allocations to both stocks and debt instruments, are considered defensive in comparison to diversified equity funds. Balanced funds may opt for differing mixes of debt and equity, with many funds holding a 65 per cent plus equity exposure to gain tax benefits accorded to equity-oriented funds.

With the stock market undergoing a sizeable correction since the start of the year, 30 out of 50 balanced funds in operation now carry a negative return for a one-year period. The gap between the worst and the best performing funds in the category is even wider.

While the worst performer recorded an NAV erosion of 26 per cent, the best managed a positive return of 22 per cent. In comparison, diversified equity funds turned in returns ranging from a negative 35 to a positive 23 per cent. The downside for the worst performing balanced fund has clearly been lower.

As a category, balanced funds did contain downsides better than diversified equity funds. Close to half the funds trailed equity indices such as the Sensex and Nifty. Many funds that generated a positive return of 1-7 per cent were children’s schemes, with higher debt allocations. Principal Child Benefit Fund Career Builder, Magnum Children Benefit Plan and HDFC Children’s Gift Fund Savings Plan are some instances.

Stock selection

The funds that contained downside better scored on stock selection and weights in defensive sectors. DSPML Balanced, which had high exposures to IT and FMCG stocks and HDFC Balanced Fund — high exposure to pharma and chemicals — are instances. Balanced funds with a higher exposure to mid-cap stocks in their portfolio lost heavily in comparison to funds with a large-cap tilt.

However, investors may be well advised to choose balanced funds based on a track record longer than a year. One-third of the balanced funds with a track record of five years plus have generated annualised returns of 40 per cent plus in this period. Principal Child Benefit Fund, with its small asset base of Rs 23 crore, tops the chart for three- and five-year periods.

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