Monday, January 25, 2010

(January 2010)

The last month of the year 2009 ended with a whimper for the mutual fund industry, but the year as a whole was a resounding success. The AUM of India’s mutual fund industry dropped to Rs 7.78 lakh crore at the end of December 2009, much below the Rs 8 lakh crore milestone that it had scaled in the previous month. The industry's average Asset Under Management fell by Rs 28,645 crore or 3.55 per cent during the said month. Reliance Mutual Fund maintained its top position as the country's largest fund house with an AUM of Rs 1,19,982 crore during the month, despite losing Rs 2,271 crore from its assets. The country's second largest fund, HDFC Mutual Fund, witnessed a hefty erosion of Rs 5,216 crore in its AUM, which crossed the Rs 1 lakh crore mark in November, 2009. The AUM of UTI Mutual Fund also fell by Rs 1,691.78 crore during December 2009 to Rs 78,203.44 crore. The country's third largest fund house, ICICI Prudential Mutual Fund, was one of the 10 fund houses that saw its AUM grow by Rs 293 crore during the month to Rs 82,432.25 crore. Besides, ICICI Prudential, other fund houses which saw their average AUM rising in December include LIC Mutual Fund, Canara Robeco Mutual Fund, Franklin Templeton, and Kotak Mahindra Mutual Fund. Fund houses that saw a decline in their assets include Birla Sunlife Mutual Fund, Deutsche Mutual Fund, AIG Global Investment Mutual Fund, and Fidelity Mutual Fund. Out of a total of 37 fund houses, 25 of them have witnessed a fall in their assets in December, 2009.

Banks have pulled out over Rs 1,00,000 crore invested in mutual funds in a single fortnight of December 2009. Aggregate bank investment in mutual funds dipped Rs 1,04,851 crore to Rs 42,428 crore during the fortnight ended January 1, 2010, the biggest fall in any 15-day period. This withdrawal could have been necessitated by the demand for funds to meet growth in loans which rose over Rs 75,000 crore in the second half of December 2009. However, it could also have been done to address RBI’s concerns over banks parking their funds in mutual funds, which subsequently invested them in corporate paper. There could be a third reason for the shift. Data suggest that bank also tend to pull out from mutual funds towards the end of a quarter as it attracts capital provisioning. Banks are also in a position to window dress their balance sheets by withdrawing funds from investments and deploying them in short-term loans. In the second half of December, bank loans grew Rs 79,515 crore along with a surge in statutory bond investments which grew by Rs 67,900 crore. Unlike investments in mutual funds, government bonds being risk-free do not attract capital requirements. But such large investments often find their way back, after a few days in the beginning of the next quarter.

Piquant Parade

The restructuring of UTI, which started seven years ago when the country’s oldest mutual fund failed to meet redemption obligations, is nearly complete. T Rowe Price, the Baltimore-based investment management company, completed acquisition of 26 per cent stake in the country’s fourth-largest asset management company, UTI AMC, for around Rs 650 crore, translating into an enterprise value of over Rs 2,500 crore, or 3.2 per cent, of asset under management (Rs 78,203 crore). Through the transaction, the four sponsors — Life Insurance Corporation, State Bank of India, Punjab National Bank and Bank of Baroda — diluted 6.5 per cent each in favour of T Rowe Price, leaving the four-state-owned entities with 18.5 per cent each. Next up is an initial public offer, though the company is in no hurry to list. In 2008, the fund house had plans to go public and had filed an offer document with the Securities and Exchange Board of India. It had to drop the plan in the wake of the global financial crisis. While a public offer would result in further stake dilution by the four public sector entities, T Rowe Price is keen to acquire a majority stake. T. Rowe Price has said it will increase its stake beyond 26% in UTI AMC “in due course”.

L&T has taken over the loss-making DBS Cholamandalam AMC after paying Rs 45 crore for just 1.56 per cent of its assets in August 2009, which were then at Rs 2,893.16 crore. As of December 31, 2009, the assets are Rs 2,901 crore. The intent, by L&T, was to effect greater synergies in its own financial services business. L&T has two wholly-owned subsidiaries in the form of L&T Finance and L&T Infrastructure Finance, servicing mainly the construction equipment finance and commercial vehicles as well as tractors segment.

Motilal Oswal Financial Services (through its subsidiary Motilal Oswal Securities) received the final certificate of registration approval from Securities and Exchange Board of India (SEBI) to set up a mutual fund business in the country. Religare Securities and Edelweiss Capital are some of the brokerages to have started their own asset management companies.

Bajaj Finserv Ltd., the financial services arm of Bajaj Group is likely to start its mutual fund company by December 2010. Allianz Global Investors and Bajaj Finserv will hold a 51 per cent and 49 per cent stake, respectively, in the equally managed proposed venture.

Bank of Maharashtra and State Bank of India Funds Management have entered into a tie up arrangement. As per the arrangement, Bank of Maharashtra will distribute the mutual funds of SBI Mutual Fund through its branches across the country. This agreement would provide SBI Mutual Funds the opportunity to reach to the semi urban and rural investors across the country.

Japan’s troubled Shinsei Bank and billionaire investor Rakesh Jhunjhunwala are said to be selling out their Indian mutual fund joint venture to Daiwa for about $10 million. If the deal goes through, Shinsei, which manages Rs 448 crore of assets in debt and equity schemes, will be valued at about 10% of assets, comparable with previous deals. The two-year old venture could provide Daiwa, a cross-town rival of Shinsei, a platform to expand in the financial services in a nation of fast-growing middle class.

Realty major DLF Ltd. announced its exit from the asset management joint venture with the US-based Prudential Financial Inc (PFI). Following this development, the venture will now be renamed ‘Pramerica Asset Managers Pvt Ltd' and will be owned entirely by PFI's sponsor group. PFI had received in-principle approval from the Securities Exchange Board of India (SEBI) in 2008 to set up a mutual fund in the country. DLF's decision to exit this area of business was triggered due to changes by SEBI in its evaluation criteria for granting approval to the joint venture mutual fund to commence its business. The criteria required DLF to have a five-year track record in the financial services business.

Regulatory Rigmarole

Recently, SEBI had issued show-cause notices to some life insurance companies selling ULIPs asking them to explain why action should not be taken against them for failure to take SEBI approval, as mandated under Section 12 (1B) of the SEBI Act, while launching ULIPs. Under this Section, anyone launching a collective investment scheme must take SEBI approval. The Insurance Regulatory and Development Authority plans to seek legal views on SEBI's power to issue notice to insurance companies for not seeking the capital market regulator's approval for their unit linked insurance products or ULIPs. It does not agree with the SEBI view that ULIPs require multiple regulatory approvals. All the insurance products that have been approved by the IRDA fall well within the purview of Section 2 (11) of the Insurance Act, IRDA has said, adding that the issue may require intervention from the Finance Ministry.

Securities and Exchange Board of India has asked mutual fund companies to make all the disclosures about market risks involved in the products more prominent in their communication. Its circular said, “To make these statements more prominent, it is advised that the disclosures as stated in the clauses 10, 13 and 14 of schedule VI of SEBI (Mutual Funds) Regulations of 1996 on Advertisement Code shall be printed in bold”. The clauses 10, 13 and 14 of the regulations ask the AMC to inform the investor that all investments are subject to market risks and the objective of the fund may not be achieved. These rules also mention that AMCs should tell investors while giving an ad that the name of the scheme does not in any manner indicate either its quality or its future prospects or returns and also to ask the investors to `please read the offer document before investing`. The clause 14A of the regulations also notes that the ad should be shown in full and not only some product extracts. In fact, clause 14B also stipulates that no celebrity would be a part of the commercial. The SEBI, however, has noted that the ads issued are generally lengthy and the disclosures are not bought to the attention of the investors.

Bank of America Merrill Lynch conducted a survey of fund managers for January 2010. The study revealed that investors have rediscovered their risk appetite and are putting cash reserves to work across the equity markets. For the first time since January 2008 the survey shows investors are taking above average risk, relative to their benchmark. A net 2% is taking ``higher than normal`` risk, compared with a net 7% taking ``below normal risk`` in December, 2009. Average cash balances have fallen to 3.4%, the lowest reading since mid 2007 and down significantly from 4.0% in December. Appetite for equities is strong. A net 52% of asset allocators are overweight equities, up sharply from a net 37% in December. Fewer investors are protecting themselves against a fall in equities. A net 55%have no protection against a fall in the next three months, compared with a net 48% in December. Investors have been moving into cyclical stocks, are positive about profits and are urging management teams to invest in growth. This survey is one of the more bullish we have seen and suggests that investors buy into the idea that this recovery has legs. A red carpet welcome to 2010…

Monday, January 18, 2010

January 2010

The NFO facelift?

Every bull run inundates the market with NFOs. The pace of NFOs has, no doubt, picked up but the mind-boggling four-digit collection figures are passé. Driving on positive investor sentiments have proved futile in effecting a NFO facelift.

Kotak Nifty ETF
Opens: January 11, 2010
Closes: January 19, 2010

Kotak Mahindra Asset Management Company has launched the Kotak Nifty ETF, an exchange traded fund focusing on investing in 50 stocks that comprise the S&P CNX Nifty. The Fund will mainly invest in stocks forming part of the underlying index in the same ratio. Each unit of the Kotak Nifty ETF will be approximately equal to one-tenth of the value of the S&P CNX Nifty. The open ended ETF aims to provide returns before expenses that closely correspond to the total returns of the S&P CNX Nifty, subject to tracking errors. Kotak Nifty ETF will be listed and can be traded on the National Stock Exchange (NSE). The Kotak Nifty ETF offers investors exposure to Nifty with a single order. It is like any other listed share enabling intra day buying and selling. Moreover, with the underlying value being similar to Nifty futures, the fund provides hedging and arbitrage possibilities.

Kotak Mahindra Asset Management Company currently operates a Gold ETF, a PSU Bank ETF and a SENSEX ETF. The addition of Kotak Nifty ETF further strengthens Kotak’s ETF product suite. Kotak Nifty ETF caters to each and every class of investor - from long term investors to arbitrageurs, institutions, and FIIs while offering the advantages of portfolio diversification, low cost, trading flexibility, and minimal tracking error.

IDFC Asset Allocation Fund of Funds
Opens: January 4, 2010
Closes: January 25, 2010

IDFC Mutual Fund has launched IDFC Asset Allocation Fund of Funds, an open ended fund of funds scheme. The primary objective of the scheme is to generate capital appreciation through investment in different mutual fund schemes, primarily local funds, based on a defined asset allocation model. The scheme offers 3 plans – Conservative Asset Allocation Plan (Conservative AA Plan), Moderate Asset Allocation Plan (Moderate AA Plan), and Aggressive Asset Allocation Plan (Aggressive AA Plan).

Conservative Asset Allocation Plan will invest 10% - 15% of its asset in equity funds with low to medium risk profile, 45% - 50% in debt funds & liquid fund with low to medium risk profile. It would allocate up to 15% of assets in money market securities with low risk profile.

Moderate Asset Allocation Plan will invest 25% - 30% of assets in equity funds with medium risk profile, 60% - 70% in debt funds with medium to high risk profile, up to 5% in liquid fund and 5% - 10% in Alternative with low to medium risk profile. It would invest up to 15% in money market securities with low risk profile.

Aggressive Asset Allocation Plan will invest 45% - 50% of assets in equity funds with high risk profile, 35% - 45% in debt funds with medium risk profile, up to 5% in liquid fund and 10% - 15% in Alternative with low to medium risk profile. It would invest up to 15% of assets in money market securities with low risk profile.

The benchmark index for the scheme will be CRISIL MIP Blended Index for the Conservative Asset Allocation plan and Moderate Asset Allocation plan and CRISIL Balanced Index for the Aggressive Asset Allocation plan.

Fidelity Global Real Assets Fund
Opens: January 11, 2010
Closes: January 29, 2010

Fidelity Mutual Fund has launched the Fidelity Global Real Assets Fund, an open-ended fund of funds (FoF) scheme that combines thematic thinking and a bottom-up stock idea selection. The fund aims to generate growth from a portfolio invested in Fidelity Funds – Global Real Assets Securities Fund. It is an offshore fund launched by Fidelity Funds (an open ended investment company incorporated in Luxembourg) and similar to an Indian mutual fund scheme.

The Global Real Assets Securities Fund invests in equity securities all around the world leading to a diversified exposure spanning commodities, property, industrials, utilities, energy, materials and infrastructure. Since launch in September 2009, the Fidelity Fund - Global Real Asset Securities Fund has outperformed its benchmark by 1.8%. The fund returned 16.10% while its custom benchmark had returns of 14.3%. The Fund was seeded by an internal Fidelity pilot fund, which since inception in January 2009 has delivered 86.2% returns. When compared to the BSE Sensex, the Fidelity Funds - Global Real Asset Securities Fund has outperformed by 3.2% since inception in September 2009, while the pilot fund has outperformed the Sensex by 9.9% over a one year period. (All returns figures are as at 31.12.09.)

The fund is looking to invest up to 100 per cent in shares and units of the underlying scheme, (which itself would invest 70 per cent in global equity securities), while it would also look to invest up to 20 per cent in money market instruments and liquid, or cash, schemes of mutual funds registered with market regulator Securities and Exchange Board of India (SEBI).

The fund would be benchmarked against the following indices – MSCI ACWI Industrials, MSCI ACWI Real Estate, MSCI ACWI Utilities, MSCI Materials and MSCI Energy. The weights assigned to each individual index while calculating the custom benchmark is 20 per cent, 20 per cent, 10 per cent, 20 per cent and 30 per cent respectively. Indian investors have always had a soft spot for physical assets, like gold and real estate. The Fidelity Global Real Assets Fund brings the option of adding a whole range of physical assets through the convenience of a diversified equity fund.
At a retail level it is a unique, first-of-its-kind fund that offers an alternate asset play with all the liquidity benefits of a mutual fund.

IDFC Monthly Income Plan
Opens: January 11, 2010
Closes: February 9, 2010

IDFC mutual fund has launched a monthly income plan, an open-ended fund of funds that aims to invest in units of debt mutual funds (income fund and liquid fund) and units of equity mutual funds. The investments in debt schemes are expected to generate regular returns while the investments in equity funds will bring in long-term capital appreciation. The fund manager will invest 65-100% of the money in units of debt mutual fund scheme. He will park 0-25% of the assets in the units of equity mutual fund schemes. The scheme’s investment mandate also allows the fund manager to invest 5-10% of the money in the money market instruments.

The scheme, by investing in a mix of debt and equity mutual fund schemes, differs from a traditional mutual fund MIP, which invests in a judicious mix of debt instruments and equity instruments. As an investment process, the fund manager will shortlist a universe of schemes, both in equity and debt taking into account quality of the sponsors, assets under management, performance of the scheme and investment objective. The fund manager will take a call on asset allocation, depending on his views on the market and risk-return consideration. Asset allocation will be reviewed on a monthly basis. The scheme is benchmarked against CRISIL MIP blended index. The fund-expense ratio, being a fund of funds, is capped at 0.75%. Here, a point to note is that these expenses are over and above the expenses charged by the schemes in which the fund manager intends to invest. The scheme sounds good for those who are looking for a solution that allows the investor to combine the benefits of assets allocation and manager diversification into a single product. The scheme may offer investors healthy risk-adjusted returns.

Peerless Liquid Fund, Peerless Short Term Fund, Peerless Ultra Short Term Fund, Peerless Mutual Fund Savings Fund, Axis Income Suraksha Fund, DSP Black Rock Focus 25 Fund, Kotak Credit Opportunities Fund, JP Morgan India Short Term Income Fund, Shinsei Tax Saver Fund, Reliance Hybrid Saving Fund, Benchmark Short Term Fund, and Benchmark Gold Fund of Funds are expected to be launched in the coming months.

Monday, January 11, 2010

January 2010

Balanced Funds Bouquet

Balanced funds are a great way to invest in mutual funds. They offer the most convenient solution to balance out stability and growth. Time and again, they have proved that they can be your best friend during tough times. Around 60-75% allocation to equities means your money would grow at a healthy pace, while the debt portion would ensure that you reach your goal safely. They are the best hope for those who want to benefit from equities but do not have the stomach for volatility. What makes balanced funds a wonderful investment proposition is their structure which works in your interest in more than one way. Firstly, around 25-40% debt allocation ensures that you are never taking undue risks by going overboard with equities. Secondly, regular re-balancing enables profit-booking as and when the equity markets go up. This means that the gains are realised and transferred to safer debt instruments regularly. Therefore, the message is clear - cushion on the downside, but a little compromise on returns. The performance of balanced funds, at least the good ones, bears testimony to that.

Notwithstanding the turbulent market till the first quarter of 2009, the bouquet of balanced GEMS of 2009 has retained its esteemed status in 2010.

HDFC Prudence Fund
Setting standards

HDFC Prudence Fund ranks among the leading balanced funds in the country. Powered by an impressive track record across the risk and return parameters, the fund has often set the tone for its peers from the balanced funds segment. Its humungous asset size of over Rs 3,370 crore also makes this oldest equity-oriented hybrid fund the largest and the most popular scheme in the category. Despite being benchmarked to Crisil Balanced index, the fund's performance, so far, has inevitably raised its benchmark to an equity index like the Sensex or the Nifty. HDFC Prudence has been successful in beating these indices uniformly year-on-year, since its launch, except in the most bullish years of 2006 & 2007. During the downturn of 2008, despite outperforming the Sensex and the Nifty, the fund fell by about 42% in '08 against the average decline of about 41% by the category of balanced funds. But what really surprises is the fund's strong comeback in the calendar year 2009. Since January 2009, the fund has delivered 82% returns, which is as good as the average of the category of diversified equity schemes. With about 75% of its assets invested in equity, the fund is extremely well-diversified and on average holds 55-60 stocks in the portfolio. The stock choices in the equity portfolio have tended to be unconventional, with a distinct mid-cap bias. Some of its recent acquisitions have turned out to be multi-baggers. Over the last couple of years, concentration to individual stocks has been reduced. From a 36 per cent exposure (of overall portfolio) to its top 10 stocks, the fund’s recent portfolios have 26-27 per cent invested in its top stocks. In terms of sectoral composition, financial services and pharmaceuticals have been dominating the fund's portfolio since 2008. As far as the fund's debt compositions are concerned, the fund mostly invests in high rated papers especially those with AA+ or AAA ratings and in sovereign papers. The consistent showing delivered by the fund can in no small measure be attributed to the process-driven investment approach followed at HDFC Mutual Fund and the efficient fund management team led by Prashant Jain.

Franklin Templeton India Balanced Fund
Mature moves

With an AUM of Rs 305 crores, the one-year return of the fund was 53%. However, the fund's annualised returns over the past five years of 12 per cent have been better than the category average of 10.47 per cent. This manifests the fact that the fund is a consistent performer and ideal for a smooth long ride. In its entire history spanning nearly a decade, the fund has never delivered less than its category. This consistent performer's loss in the market downturn has been less than that of its category, by four per cent. While the large-cap bias helped the fund in remaining afloat through the crisis, the same bias had limited its returns in the bull run of 2007. The large cap exposure in December 2009 was around 84%. The fund follows a disciplined approach for its asset allocation. Its equity allocation has averaged 65 per cent since inception. As far as the sectoral allocation is concerned, financial services has always been among the favourite sectors of the fund. Other favourite sectors of the fund are engineering and diversified. The portfolio of the fund looks fairly diversified with around 38 stocks. Furthermore, allocation to a single stock is rarely seen exceeding seven per cent in the recent years. On the debt side, a large portion (around 16 per cent at present) of the fund's portfolio is invested into debentures. Among the debt instruments as well, financial services is the favourite sector of the fund with an average allocation of 11.31 per cent since inception to nearly 10% at present. The fund manager has recently been increasing the allocation to debentures of the energy sector. From less than one per cent allocation in November 2008, it has increased to 11.5 per cent in December 2009. Overall, diversified portfolio with a large-cap tilt makes the fund suitable for tiding over the rough weather as well as earning consistent long-term returns.

Magnum Balanced Fund
Changing chances

Magnum Balanced had a chequered track record and hit a rough patch in 2008. But, going by its 5-year annualised return of 26 per cent, this Rs 501 crore fund still has a lot going for it. This fund has left behind its days of brashness to evolve into a stable offering. Despite a mandate allowing it to go headlong into equity, the fund has never done so. In fact, its highest exposure has been at around 79%. It hovers at around 74.6% at present. Currently, the fund looks fairly diversified with the top three sectors accounting for nearly 31%, in line with its category. The number of stocks, which at times has been around 25, has averaged at around 47 in the past year. On the debt side, the fund sticks to high quality paper and prefers debentures and certificate of deposits of banks and financial institutions. The fund maintains a broad portfolio that has averaged at 47 stocks, where no single stock allocation has crossed 5 per cent with the exception of Reliance Industries. Finance, energy and engineering stocks constitute a third of the portfolio. On the debt side, the fund maintains a high quality portfolio with a preference for Certificates of Deposit (CD), Commercial Paper (CP) and non-convertible debentures. That is because the debt portion of the portfolio is usually maintained on shorter duration to generate regular income, and thus held to maturity. But, often during periods of volatile or higher yields, the duration is hiked - by investing mainly in G-Secs - and trade for profits.

Sundaram Balanced Fund
Cautious calls

Sundaram Balanced Fund understands the tenets of balanced funds. The fund has not only earned decent returns for its investors, but protected them through the ups and downs of the markets. The balanced nature of the fund is reflected in the way it has tackled market rallies. While it has responded well to all of them, it has maintained equilibrium, unlike some of its peers. The AUM of the fund rose from a mere Rs 46 crore in November 2009 to Rs 176 crore in December 2009 – a massive jump in a short period. The fund managers intend to pursue asset allocation strategies in the forthcoming periods and would be largely initiating trading strategies in Government of India securities. Caution is obvious in the way the fund is managing its debt portfolio. The equity component has fallen to as low as 21% and will be stepped up to deploy the inflows. The preferred sectors are financial services, metals, and engineering, with an emphasis on large caps. 78% of the stocks are large caps. There were a total of 18 stocks as on 31 December, 2009.

DSP BlackRock Balanced Fund
Safely steadfast

You will not find this fund topping the charts, but neither will you find it at the bottom of the ladder. This one does what a balanced fund is supposed to do - play it safe. And therein lies its appeal. The fund sticks to its equity mandate of 65-75 per cent, with its equity allocation hovering at around 74% at present. It upholds its large cap bias, which stands at 45% at present, but is not averse to smaller stocks. Since January 2008, its top five stocks hardly accounted for around 15% (13% in December 2009) of the total corpus whereas the category average was almost 24%. It stays well-balanced across sectors and casts its lot with defensives. While healthcare and consumer non-durables are prominent, infotech has always been its favourite. On the debt side, unlike its peers, it has refrained from extensively investing in debenture and commercial paper. Rather, it invests in floating rate papers of all kinds and government bonds. This way, it is protected on the credit as well as interest rate side.

Monday, January 04, 2010

Balanced Funds

Smart start

The mandate of balanced funds is to invest in both debt and equities in a roughly equal proportion. So, obviously, their returns mirror the performance of these two asset classes. Over the past few months, equities have been sprightly, while debt has been lacklustre, with the net returns being worth savouring. A smart start for novices…

Out of the woods…

Over a one-year period, the set of 32 balanced funds, with a track record ranging from sixteen years to three years, has performed commendably. Most of them have bettered the Crisil Composite Bond Fund Index, a benchmark for balanced funds, often handsomely. The highest one-year return was posted by the evergreen HDFC Prudence at 84%, with the fund at the last rung of the ladder turning out a decent 24%. The average one-year return of the category of balanced funds was an impressive 57%, with as many as twenty funds having given a sumptuous return of 50% and above. Over the two-year period, though, the performance of balanced funds was more scattered, as they struggled to deal with the volatility in the stock market and the ripple effect of rising interest rates in the debt market. Balanced funds were constrained by the mandate of having to hold an average of 65 per cent in equities to qualify as equity funds. Hence, their ability to shield the fund returns with debt was limited and they faltered at the height of the global financial crisis.

Star schemes shine…

Scheme selection is of paramount importance, as is seen by a significant variance in performance across the set – a range as high as 60%. The most striking variance was the difference in performance of the two HDFC balanced funds. While HDFC Prudence, which HDFC got from the takeover of Zurich Mutual Fund in the late-nineties, was ranked number one, its home grown HDFC Balanced came in only fifth, with a marked difference of 11% in the one-year CAGR. Yes, scheme selection can make a sizeable difference to your returns.

Through the looking glass…

All asset classes have their own cycles, which at times run in opposite directions. Investing in more than one asset class, that too dissimilar and often moving in different directions, helps de-risk a portfolio. Such are the conditions in the debt and equity markets today that balanced funds make a case not just for conservative investors, but also for the opportunists. Indian equities might not deliver the runaway returns of the past five years (barring 2008), but they still hold immense promise in the long run. With the hardening of interest rates, the debt picture is not that rosy. Neither is it depressing. For the opportunists who want to ride the equity market as well as the appreciation from a drop in interest rates (in future), balanced funds are the option. Even for conservative investors, who do not want to take aggressive calls on asset allocation or stocks, balanced funds work out well. When it comes to asset allocation, balanced funds tend to be more disciplined than equity funds. In order to be classified as an equity-oriented fund (and be eligible for lower rates of capital gains tax and exemption from dividend distribution tax), a balanced fund has to invest at least 65 per cent of its corpus in equities. It tries to maintain that figure. It cannot go too low or else it would lose its preferential tax status. It cannot go too high without deviating from its mandate. This ensures a minimum equity allocation, as well as periodic profit booking in case of a bull run.

Simple investing techniques can deliver better results at much lower costs than the hard-to-understand financial products. As an investment category, balanced funds are simple and suited for cautious investors who seek the capital appreciation of equities, but only on the condition that they have some protection in the form of stable debt returns in case things do not pan out as planned. The underlying logic behind hybrids is that when stocks are sizzling, they can ride the trend. When stocks falter, hybrids can seek shelter in bonds. That profile, however, means making tradeoffs, namely, that the upside for a balanced fund during a bull run is less than an outright equity fund. Besides the investment opportunities, balanced funds present a unique diversification opportunity. Find your balance, but zero in on the right balanced funds.