If you are looking for some insulation from wild market swings, then ICICI Prudential Balanced Fund is a good bet. The fund brings together the best of two worlds — equity and debt — by parking about a fifth of its portfolio in debt.

The fund has clocked a five-year return of 16.9 per cent and has beaten other equity-oriented balanced funds by a margin of four to five percentage points across three- and five-year timeframes.

The fund has also managed to cap its losses well during market falls and volatile times. During the bearish market of 2011, for instance, the fund lost 9 per cent, lesser than most funds in its category. On an average these funds fell close to 15 per cent during this time period. Even in the sideways market of 2013, the fund raked in a tidy 10 per cent, when many funds delivered just half the returns.

Well-balanced The fund has held its equity exposure at about 65-70 per cent over different time periods.

Of this, the fund predominantly parks its money in large-caps (those with market capitalisation of over ₹10,000 crore).

But the fund also times its mid-cap investments well, to boost its returns.

For example, after a flaccid stock market performance in 2013, the fund was quick to catch on to the ensuing rally and delivered 45 per cent return, a good 6 percentage points higher than the category average. Mid-cap picks, such as Balkrishna Industries, TVS Motor and Repco Home Finance paid off.

It has managed its sector allocation well. To cash in on the 2014 rally the fund increased its exposure in banks and capital goods while trimming its holdings in IT which underperformed the broader market indices.

Since the beginning of this year, the fund has cut down its exposure in banking stocks and instead increased its holdings in defensives, such as IT and pharma.

The fund has also managed to make the right moves to make the most of falling rates.

Right calls It gradually increased its exposure to long-term government bonds through 2014, raking in good gains from its debt portfolio. It has also managed to cap its losses by making the right calls during rate hike cycles. In the period between March 2010 and October 2011, when the RBI raised interest rates, the fund stayed away from gilts and instead invested in corporate debt, maintaining a low duration.

ICICI Pru Balanced invests in gilts, certificates of deposit, commercial papers and corporate debentures. The fund currently has a duration of seven years and has invested about a fifth of its portfolio in G-Secs which will help reap gains as interest rates move south over the next year.

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