The Hindu Business Line : DSPML Balanced Fund: Invest

Investors can consider buying units of DSPML Balanced Fund. With over a third of its assets in debt, the fund declined 22 per cent on a one-year basis. Exposure to debt has restricted the fund’s losses to about 50 per cent of the Sensex return (of -43 per cent). The fund’s three-year annualised return of 15 per cent is not only superior to its benchmark Crisil Balanced Fund index but also higher than the Sensex return.

Suitability: Equity-oriented balanced funds offer a good option for investors wanting to remain invested in equities despite heavy turbulences in the stock market. While balanced funds provide better cushion on the downside, they have, in the past, underperformed a number of diversified equity funds during market rallies. The former’s exposure to debt tends to drag performance during such phases. Balanced funds are, therefore, suitable only for investors with moderate return expectations; the fund may also suit those looking to tactically allocate asset within two different asset classes — equity and debt. DSPML Balanced Fund, with a strong track record, has weathered earlier bear phases reasonably well. The fund may therefore be a good choice among the basket of balanced funds.

Performance: Over a six-month period, DSPML Balanced declined about 19 per cent, 400 basis points more than its benchmark. The Sensex declined 33 per cent over this period.

Its five-year performance equals the average return of diversified equity funds — a feat achieved by only two other balanced funds, Magnum Balanced and HDFC Prudence. DSPML Balanced has also demonstrated consistency in its performance over the last five years. On a rolling monthly return basis the fund has consistently outperformed its benchmark 67 per cent of the times. However, such out performance ratio is less than 50 per cent as against the Sensex, suggesting that the fund may not be among the top performers, especially during market rallies.

Allocation: DSPML Balanced learnt a hard lesson in the May-June 2006 correction, its worst ever monthly performance. During the correction that began this year, the fund started reducing exposure to equity from January 2008 and increased allocation to debt, thus managing to contain declines much better than the broad market.

It currently holds about 65 per cent in equity and the rest in debt and cash. The debt portfolio’s average maturity has been five-six months over the last one year. The fund has rightly taken exposure to short-term debt in order to gain from rallying interest rates. One needs to watch whether the fund goes for higher tenure instruments in the next couple of months, what with long-term rates moving up.

DSPML Balanced has been able to tactically shift between sectors in its equity portfolio. For instance, the fund was high on sectors such as capital goods and petroleum products in November and December and later moved to defensive sectors such as pharma, IT and consumer durables in 2008.

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