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With equity markets on a rollercoaster ride and debt markets likely to offer good returns, balanced funds make a good investment option today. The Tata Balanced Fund, with equity holdings at 65-75 per cent of the portfolio and the balance in debt instruments, has delivered an annual 22.8 per cent over the past 10 years.
Over the one, three and five-year periods too, the fund did far better than the category average, ranking in the top quartile of equity-oriented balanced funds. It invests in stocks across the market cap range , which helps it deliver superior returns, but makes it slightly riskier.
Consistently good
In the past five years, the fund has beaten its benchmark - Crisil Balanced Fund index – a good 87 per cent of the time, indicating a consistent record. Its five-year annual return of 13.5 per cent is not only well above the benchmark’s 7.8 per cent, but better than diversified equity funds.
While the fund slipped in the 2008 bear market on account of higher mid-cap holdings, it has learnt its lesson well. In the 2011 fall, it switched out to large-caps, reduced equity holdings and raised corporate debt exposure. It was similarly adept at making the most of the mid-cap driven 2012 rally, delivering 9 percentage points more than the benchmark. Over the one and three year periods, with its return of 6 and 5 per cent, the fund has comfortably beaten the benchmark.
Effective Portfolio
The fund generally avoids taking concentrated bets, with no individual equity or debt instrument holding more than 5 per cent of the portfolio.
Equity investments have been kept above 70 per cent of the portfolio in the past few years. Its August portfolio has an equity share of 75 per cent, with the remaining in debt.
Cash holdings have been scaled down over the past couple of years, taking advantage of higher interest rates. Even so, the fund has remained conservative, seeking to reduce credit risk of its portfolio. At an 11 per cent portfolio share, Government securities which offer attractive yields, form half the debt holdings now. About 6 per cent is held in ‘AA’ and ‘AAA’-rated debentures from institutions such as Power Grid Corp, REC and Nabard. Smaller holdings are in money market instruments.
Over the past few months, the fund has quickly shed banking and financial stocks in favour of telecom and software scrips.
Software is now the top holding with a 13 per cent share, and top performers being TCS and HCL Technologies. Steady holding in defensives for the past couple of years also aided the good performance. Other sector calls the fund got right include cutting oil and gas exposure in 2011 while adding financials.
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