Mutual Funds

Buttressed by higher debt

K Venkatasubramanian | Updated on January 23, 2018


The fund has gained from the bond market rally over the last one year

At a time when the markets are quite volatile and with muted earnings expectations, it may be appropriate for risk-averse investors to opt for balanced schemes that take safe bets in their portfolios. SBI Magnum Balanced is one such scheme and investors could buy units of the fund for above-average returns over the medium to long term while taking low risk.

Compared with most equity-oriented hybrid schemes that take 75 per cent equity exposure, SBI Balanced restricts itself to 65-70 per cent.

The relatively higher debt exposure cushions the portfolio against market falls and provides a conservative mode to accumulate a corpus over a three-to-five-year time frame.

The scheme has done better than its category over one, three and five-year timeframes. SBI Balanced has outperformed the category average by a margin of 2-7 percentage points across time frames.

Over the last three years, it has been among the top few schemes in its category and has done better than even the best names, such as L&T Prudence, ICICI Pru Balanced and Franklin India Balanced.

Units of SBI Balanced may be accumulated through the systematic investment plan (SIP) route to average costs. It may be suitable as a diversifier for a conservative investor.

Portfolio and strategy

The scheme takes debt exposure to the tune of 30-35 per cent of its portfolio.

Government securities generally dominate the debt portion. Debentures, certificates of deposit and NCDs from institutions such as Dena Bank, Blue Dart, Sterling and Wilson (a Shapoorji Palonji subsidiary), IFCI and Janalakshmi Financial Services, too, figure in the portfolio. Instruments rated AA and A are also bought into by the fund.

Given the declining rate trajectory, SBI Balanced has been able to gain from the rally in the bond markets over the last one year.

In its equity portion, the scheme generally takes very diffused exposure to individual stocks. Many of the names are stable large-cap stocks from frontline indices which carry low risks.

Exposure to mid-caps is restricted to quality names.

These include companies such as P&G Hygiene, 3M India, Ramakrishna Forgings, eClerx Services and Sundaram Finance.

Mid-cap stocks make up about 35 per cent of SBI Balanced’s portfolio, which is a bit lower than the exposure that many of its peers take.

Given its ability to contain losses well and the capability to participate in rallies of both equity and debt markets, the scheme generally delivers above-average returns over a three to five-year horizon.

It may not necessarily be a chartbuster, though.

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Published on April 19, 2015
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