The Hindu Business Line : Tata Balanced Fund: Hold

Tata Balanced may be suitable for investors with a high risk appetite, as it has substantial equity exposures, especially in volatile mid-cap stocks.

K. Venkatasubramanian

Investors may retain the units of Tata Balanced Fund, given its long-term track record in delivering returns.

The fund invests 65-75 per cent of its portfolio in equity across market phases and takes a multi-cap approach to investing in equities.

Over a one-, three- and five-year period, Tata Balanced has managed to outperform its benchmark — Crisil Balanced Fund index.

Over a five-year period, the fund has managed a compounded annual return of 22.5 per cent. This is lower than peers’ such as HDFC Prudence, Birla Sun Life ’95, but higher than DSPBR Balanced. Incidentally, these four funds are among the few top schemes in the performance chart of funds with an over 10-year track record.

Tata Balanced may be suitable for investors with a high risk appetite, as it has substantial equity exposures, especially in volatile mid-cap stocks. This increases the risk of fluctuations in its NAV. HDFC Prudence also follows a very similar investment style, but has been able to contain downsides better on many occasions.

While Tata Balanced fund outperforms its benchmark during periods of market upswings, it does not contain downsides during periods of correction. Investors with a more conservative appetite may thus look at funds such as Birla Sun Life ’95 and DSPBR Balanced as options, while retaining Tata Balanced as an aggressive non-core fund.

Performance and Strategy: During periods of market downtrends such as those during January-May 2004, May-June 2006, Early 2007 and in the prolonged fall of 2008-09, the markets corrected 15-60 per cent. In these corrections, Tata Balanced significantly underperformed the Crisil Balanced Index as well as many of its peers.

But during the bull run of 2006, 2007 and in the recent run-up that started in March this year, the fund has outperformed its benchmark substantially.

This may be explained by the fact that the fund had 10-25 per cent of its portfolio invested in mid-cap stocks (less than Rs 7,500 crore market capitalisation) depending on the market conditions. In the previous bull-run, Tata Balanced was able to benefit from this strategy and was able to deliver above-average returns. But it also meant that the fund’s NAV took a deeper cut during market volatility.

In the non-equity portion, which was 25-35 per cent of the portfolio, a large portion has been cash and equivalents. This has been to the tune of over 18 per cent of the overall portfolio. The rest are AAA rated bonds issued by companies such as Exim Bank, ensuring reasonable safety.

There have been no risky debt exposures or CBLOs taken by the fund. This part of the portfolio has thus been less aggressive and risk-averse in pursuing returns.

Among the fund’s favoured sectors, banking stocks have remained prominent across market cycles. Tata Balance’s latest portfolio suggests a more defensive approach with stocks from sectors such as software, pharma and consumer non-durables.

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