Personal Finance

Top 4 balanced funds for ULIP investors

Dhuraivel Gunasekaran BL Research Bureau | Updated on March 24, 2020

These funds strike a good balance between equity and debt allocation, and have delivered good returns over time-frames

Over the past month, the Indian equity market has witnessed massive volatility due to the coronavirus pandemic and rising fears of a slowdown in the global and domestic economies.

The broader equity market index Nifty 50 TRI has plummeted as much as 28 per cent during the period. This has also led the equity mutual funds and equity funds offered by unit linked insurance plans (ULIPs) correcting their NAVs significantly.

In this scenario, ULIP investors who had allocated their units to equity-oriented funds and now want to play safe, can consider shifting part of their investments to the balanced funds offered by the respective ULIP plans.

Here, we look at the performance and portfolio composition of the top four balanced funds offered by the ULIPs of different life insurance companies.

What are balanced funds?

Balanced funds, also called hybrid funds, invest in both asset classes — equity and debt. The allocation to equity helps generate inflation-beating returns while the debt allocation protects the downside.

Like mutual funds, ULIPs also offer balanced funds with a broad range of asset allocation strategies including static and dynamic allocation. However, unlike mutual funds, where there are subcategories in balanced funds such as aggressive hybrid (65-80 per cent of total assets to equities), dynamic asset allocation (0-100 per cent in equities), multi-asset allocation (at least 10 per cent in equities) and conservative hybrid (10-25 per cent in equities), there is no such categorisation in ULIPs, as the Insurance Regulatory and Development Authority of India (IRDAI) doesn’t have any such mandate. Each balanced fund offered by life insurers has its own definition of how much allocation is made in equity and debt.

Here, we have considered balanced funds that allocate 30-60 per cent of their total assets to equities and the rest to debt. There are 33 funds under this category.

In you are a ULIP investor, you can invest a portion of the premium in the below-mentioned funds, or make a switch from some other fund. These funds are short-listed based on the rolling returns calculated from the last seven-year NAV history (Source: Capitaline database).

Note that since most hybrid funds hold a portfolio heavy on fixed-income instruments, there will be risk associated with investments in bonds, especially credit risk. Over the past 15-18 months, a spate of corporate bond downgrades and defaults has impacted the performance of ULIP balanced funds, too.

SBI Life Balanced Fund

Among SBI Life ULIPs, the SBI Life Balanced Fund is a good option. The active ULIP plans offering this fund include SBI life Smart Power, Smart Elite, Smart Scholar, Smart Wealth Builder, Saral Maha Anand, Smart Privilege, Smart InsureWealth Plus and Saral InsureWealth Plus.

It is one of the ULIP balanced funds that manage a large corpus; as of February 2020, its corpus size was ₹10,018 crore. It delivered 3.9, 5.2 and 8.2 per cent compounded annualised returns (CAGR) over three, five and seven years, respectively, while the ULIP balanced funds allocating 30-60 in equity assets delivered 2.1, 3.8 and 6.3 per cent, respectively, during the periods.

The fund managed to deliver outperforming returns, especially in choppy markets. For instance, in 2015 and 2018, it posted 4 per cent and 3 per cent, respectively, while the category posted 2 and 1 per cent.

The fund has held an average of 46-55 per cent in equities over the last three years. The equity portion is managed with a multi-cap approach. On the debt side, the fund follows a moderate duration strategy. It holds only AAA/AA+/AA rated debt papers. However, it also has a meagre exposure (0.14 per cent) to ‘D’ rated DHFL papers.

Kotak Life Balanced Fund

ULIPs from Kotak Life, including Wealth Insurance, Ace Investment, Headstart Child Assure, Platinum and Invest Maxima, offer balanced fund options. The Kotak Life Balanced Fund has delivered 2.6, 4.6 and 8.8 per cent CAGR returns over three, five and seven years, respectively.

The performance of this fund during market rallies has been notable. For instance, in 2017 and 2019, it generated 19 and 12 per cent returns, respectively. The scheme holds quality blue-chip stocks and the highest-rated debt securities. Over the last three years, it has shuffled its equity allocation between 53 per cent and 58 per cent. In the equity portion, the fund follows a multi-cap approach with a large-cap orientation. In the debt portion, a major allocation has been made to government securities.

The fund follows a moderate duration strategy. As of February 2020, the modified duration of the portfolio was 5.3 years.

HDFC Life Balanced Managed Fund

HDFC ULIPs, such as Unit Linked Endowment, Endowment Plus, Young Star, Young Star Plus, Endowment Suvidha, Endowment Suvidha Plus, Young Star Suvidha and Young Star Suvidha Plus, offer an option to invest in the balanced fund. The HDFC Life Balanced Managed Fund has delivered 2.8, 4.8 and 8.6 per cent CAGR returns over three, five and seven years, respectively.

The performance of the fund during both bull and bear equity market phases has been commendable. It actively shifts its equity allocation between 50 and 55 per cent of its assets, depending on market phases. In the equity portfolio, it follows a high conviction strategy. As of February 2020, it held 27 stocks in its equity portion. HDFC Bank, ITC, Infosys, RIL and ICICI Bank are the top five holdings. On the debt side, the fund manager takes active duration calls. The modified duration of the debt portfolio was 5.9 years (as of February 2020).

Aditya Birla Sun Life Individual Life Creator

ULIPs including Aditya Birla Sun Life Wealth Max, Wealth Secure, Wealth Assure Plus, Fortune Elite And Wealth Aspire offer this balanced fund option. The Aditya Birla Sun Life Individual Life Creator fund has managed to outperform its peers across time frames. In the last three, five and seven years, it has delivered 3.7, 5.2 and 8.7 per cent CAGR returns, respectively.

The equity portfolio is well diversified across a large number of stocks (48 stocks as of February 2020), which mitigates concentration risk. In the current portfolio, the allocation to equity is 45 per cent. The fixed-income allocation is actively managed with a mix of corporate debt and government securities. It follows a blend of accrual and duration strategies.

Published on March 24, 2020

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