Monday, January 10, 2011


January 2011

Mutual funds offer a potpourri of many asset classes. So it is only natural that a number of hybrid funds have emerged to address varying investor needs. One such hybrid offering is the balanced fund. With its genesis dating back to the late twenties in the international investment market, a balanced fund invests in both equity and debt markets. It is best suited for investors who intend to benefit from the upside of equity markets without being very aggressive. In the backdrop of a sharp volatility in the Indian stock market, balanced funds offer a safer way of investing.

While a majority of the 2010 GEMs have maintained their balance, Magnum Balanced and Franklin Templeton India Balanced seem to have lost their equilibrium, and have been shown the door. Reliance Regular Savings Fund and Canara Robeco Fund have made a well-deserved entry and have earned the esteemed status of ‘GEM’ in 2011.

HDFC Prudence Fund Gem

Stable Sprinter

One of the oldest schemes in the balanced funds basket, HDFC Prudence Fund has proved its mettle in terms of its performance during the various market phases. Despite being a balanced fund, HDFC Prudence does not deprive investors of gains during an equity rally. Adept calls in debt have not only provided a hedge during market corrections but actually helped the fund generate alpha returns, when compared with the bellwether indices. The fund manager has no problem moving against the herd, as reflected in his picks. He invests in good quality businesses, remains diversified and steers clear from richly valued investments. Financial services, energy, and technology are the top three sectors in the portfolio accounting for 34% of the total portfolio. 51% of the fund’s portfolio is in large caps. HDFC Prudence returned 21.25% over a one-year period, way ahead of the 11.73 % return of category. A SIP in HDFC Prudence over the last ten years would have yielded 30% compounded annual return — a feat very few equity-oriented funds have achieved over this period. The expense ratio is 1.82% and the portfolio turnover ratio is 34.29%. The fund’s assets under management swelled to over 75% in the last year, with the AUM standing at Rs 5709 crore at present. This suggests that it has been seeing continuous inflows, contrary to the broader trend of schemes facing redemption pressure. HDFC Prudence is a class act. It sprints like an equity fund but delivers the stability of a balanced fund. Overall, investors cannot have a better option than this. The fund would fit the core portfolio of any equity investor. Continuity of the fund manager, unmatched returns, and optimum stability make it the right fund for the long-term.

Sundaram Balanced Fund Gem

Cost-effective Safety Net

This Rs 70 crore fund has earned a return of 15.6% over the past one year. The fixed income portion of the fund is largely invested in corporate bonds followed by government securities. The equity component accounts for 41.4% of the assets and is spread across the cap curve and sectors. The top three sectors, accounting for 31% of the portfolio, are financial services, energy, and services. 58% of the portfolio is in large caps. The expense ratio of the fund is a mere 0.49% while the portfolio turnover ratio is as high as 720%.

DSP Black Rock Balanced Fund Gem

The Conservative Champion

Most of the equity investments in large-cap stocks, relatively lower risk, and the ability to bounce back from tough situations make it one of the better balanced funds. The fund's track record over the last 10 years across market cycles has been quite steady. The top three sectors of this Rs 793 crore fund are financial services, energy, and technology, contributing 31% to the portfolio. The one-year return of the fund is 11.24%. Over one-, three- and five-year timeframes, the fund has managed to better the performance of its benchmark — Crisil Balanced. DSPBR Balanced has generated a compounded annual return of 20.9% over a five-year period, placing it among the top few funds in its category. Despite the highly diversified portfolio, the fund manager does a large amount of churning. The expense ratio is 2.08% and the portfolio turnover ratio is 250%. DSPBR Balanced may be a suitable fund for investors with an average risk-appetite. Exposure through the SIP route may help combat volatility better. Though the fund over the years had dabbled in various debt instruments, it largely maintains a conservative stance on the debt side. A good bet for the conservative investor.

Reliance Regular Savings Fund In

Concentrated Aggressiveness

Reliance Regular Savings Balanced Fund failed to demonstrate a superior performance in the initial few years of its inception. However, in the past three years, it has outperformed the market thereby establishing itself as a strong contender among its peers. It has not only delivered more than average returns during the market run-ups, but also displayed resilience during the market crash. The fund’s asset base has seen a surge from just over Rs 20 crore to nearly Rs 806 crore now. Being equity-oriented hybrid scheme, Reliance Regular Savings Balanced Fund has a leeway to go up to 75% in equity. However, it has not really touched that limit. On the debt side, the fund has largely had cash and call money. However, since February 2010 the fund has taken an exposure in debt paper like certificate of deposit and commercial papers. Historically, the fund had a condensed portfolio of less than 20 stocks within the equity portfolio, which is now diversified to 30 stocks limiting the exposure in a particular stock to just about 5%. The fund has also been increasing its exposure to large cap stocks, with 46% at present. Over a one-year period, the fund has clocked compounded annualised return of 17.76% and outpaced its category average by 6 percentage points. The expense ratio of the fund is 1.85% and the portfolio turnover ratio is 84%.

Canara Robeco Balanced Fund In

Costly Cushion

The one-year return of the fund is 13.46% as against the category average of 11.73%. Over the 5-year period ended July 31, 2010, the fund has delivered an annualised return of 22% (category average: 16%). On the fixed income side, the fund manager takes no risk at all. In its past, it dabbled with low quality paper, but that is no longer the case. On the equity side, the selection is more of bottom-up stock picking. The aim is to generate alpha on the way up and protect investors on the way down. In the market crash of 2008, the fund was able to shield its investors better in three out of four quarters. Moreover, 72% of the portfolio is in large caps with the top three sectors concentrated in energy, financial, and financial services sectors. The expense ratio of this Rs 186 crore fund is high at 2.39% with a very high portfolio turnover ratio of 272%.

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