Balanced funds back on investors' radar

Investor folios exceed 2 million, assets more than double since FY14.

Amid sharp volatility and a 12 per cent correction in benchmark equities compared to their peak levels this year, investors are increasingly opting for balanced mutual fund schemes.

These funds, which typically invest 60-70 per cent of assets in equity and the rest in debt, are gaining traction among investors seeking an extra risk cover. 

Since March, the mutual fund sector has added 140,000 new investor accounts in the balanced category, surpassing the two-million mark.

During the April-July period this year, the sector recorded gross sales of Rs 10,000 crore (Rs 100 billion) in the segment, about 15 per cent of the sales of pure equity funds.

In 2014-15, with a rally of about 30 per cent in the stock market, investors had shunned investment in balanced funds, flocking to diversified equity funds. This led to the closure of about half a million balanced fund folios in FY15. 

However, that seems to be changing due to a correction in stocks and no visible growth in corporate earnings.

Investors are willing to take exposure in schemes that offer a diversified portfolio from two asset classes - equity and debt. 

S Naren, chief investment officer of ICICI Prudential AMC, says, “2015 is the year for investing in equities with a horizon of at least three years. We recommend defensive equity investing, with products in the balanced advantage and dynamic-asset allocation category as suitable ways to ride the volatility. These funds invest in equities when markets are cheap and book profits when markets are rising, limiting risk and aiming to provide good returns.”

Through the past two years, the balanced fund category has given annualised returns of 30 per cent. 

During April-July this year, there was a net inflow of Rs 8,162 crore (Rs 81.62 billion), about 80 per cent of what was recorded in FY15. For April-July 2014, net inflows stood at a mere Rs 342 crore (Rs 3.42 billion). 

The recent strong inflows into the segment pushed the overall assets of balanced funds to Rs 33,365 crore in July, more than double the assets in FY14. 

Fund managers say in the current environment, balanced funds are the way ahead. They add the correction in the market is due to factors such as earnings falling short of expectations and worries on the growth front. “We continue to believe a correction is an opportunity to invest. This phase does not affect the long-term compelling case for Indian equities with a moderated return expectation,” says Naren. 

Currently, the mutual fund sector offers 26 balanced funds. These include ICICI Prudential Balanced Fund, ICICI Prudential Balanced Advantage Fund, HDFC Balanced Fund, HDFC Prudence Fund, Franklin India Balanced Fund and SBI Magnum Balanced Fund.