Investors can buy the units of Tata Balanced, a fund with a long-term track record in delivering steady returns. Over one-, three- and five-year timeframes, the fund has outperformed its benchmark – Crisil Balanced Fund Index.

In the last five years, the fund has managed compounded annual returns of 8.3 per cent, which places it in the top quartile of funds in its category. This is higher than the returns managed by peers such as DSPBR Balanced and FT India Balanced.

Tata Balanced manages to ride on market rallies and delivers outperformance during such phases. It, however, falls short on containing downside when markets fall, especially in protracted corrections. But over the past 12-18 months, the fund has improved on this aspect and has managed the volatile markets of 2011, and much of this year, reasonably well.

The fund may be suitable as a diversifier for investors with a moderate risk appetite. Exposure to the fund may also be taken through the SIP (systematic investment plan) route to ride out market volatility.

Portfolio and strategy

Tata Balanced maintains an exposure of around 75 per cent of its portfolio in equities, with the rest being held in debt instruments and cash. In the past, the fund was aggressive with its equity portfolio, investing 25-30 per cent in mid-cap (less than Rs 7,500 crore market capitalisation) stocks. While this helped the fund in outperforming, it made it susceptible to market falls. Over the past one year, the proportion of mid-cap stocks in the portfolio has been reduced to around 15 per cent. An increased large-cap focus may work well for the fund in the current volatile environment as such stocks tend to enjoy better earnings visibility.

Banks and consumer non-durables have generally been among the top few sectors held by the fund. But over the past one year, the proportion invested in consumer non-durables has been reduced as valuations in the space may have gotten expensive. But exposure to banks and pharma has been increased. Individual sectors mostly account for less than 10 per cent of the portfolio, barring a couple of cases. Even in the case of stocks, exposure to individual shares is generally kept to less than 5 per cent. This strategy makes the fund less risky and reduces volatility.

The fund churns its portfolio vigorously, with as over 25 stocks being exited over the past one year and an equal number being bought into over the same period. The may be due to picking stocks that offer either or both of value and momentum.

Tata Balanced takes a relatively safe route in managing its debt portfolio. Investments are generally made in AAA or AA+ instruments. These include NCDs (non-convertible debentures) of financial institutions such as HDFC, REC, PFC, SBI and L&T Finance, among others.

Investments are also made in certificates of deposits of nationalised banks and government securities. The fund has invested in the zero coupon bonds of Tata Capital Financial Services as well. The NAV per unit of the growth option is Rs 118.2.

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