Yesterday, in Why you must invest in a balanced fund, we spoke of how balanced funds make for a good investment option.
By investing in both shares and fixed-return investments, balanced funds seek to get the best from both worlds.
They are the best hope for those who want to benefit from the stock market but don't have the stomach for volatility.
We believe that all sorts of investors should have at least some portion of their investments in balanced funds.
Today, we list some funds that you can consider investing in.
Before we continue, just a few clarifications.
- Net Asset Value and returns are as of August 22, 2005.
- NAV and returns are for the growth option of the schemes. To understand growth and dividend schemes in detail, read The best mutual fund scheme for you.
- Entry load is the fee you pay when you buy units of a fund. Exit load is the fee you pay when you sell the units of a fund. Both are percentages of the NAV, which is the price of a unit of a fund.
Launch: January 1994
NAV: 72.713
Entry load: 2.25%
Exit load: Nil
1-year return: 59.84%
3-year returns: 47.63%
5-year returns: 29.93%
Traditionally, the portfolio has always been dominated by large-caps. Since late last year, a shift towards mid- and small-cap companies has taken place. This has resulted in higher returns.
Astute sector moves and a portfolio spread over 20 to 30 stocks has clicked for the fund.
When energy stocks were shooting up in 2002, the fund manager increased exposure to this sector from 4.3% in January 2002 to 16.7% by March.
In plain and simple terms, it means that he invested more money in such stocks and from his total investments, the percentage invested in this sector increased.
Ditto for banking stocks. He increased exposure from 5.4% in November 2002 to 17.34% in July 2003.
This fund has been a consistent performer and its long-term performance is praiseworthy. If we ignore the recent few months, the fund has delivered by largely sticking to its 60:40 equity debt allocation. Even in 2003, when the equity markets were on fire, it continued with this approach and gained 91.92%.
This is what makes the fund stand out. It races like an equity fund but with utmost stability.
Launch: May 1999
NAV: 25.21
Entry load: 0%
Exit load: 1.25% if units sold within a year of buying
1-year return: 39.20%
3-year returns: 38.25%
5-year returns: 17.89%
A low risk debt portfolio (fixed return investments that it invests in are safe) and a bias towards large-cap stocks make this fund a safe choice.
Recently the fund has not performed as well as its peers. The reason being that it has invested heavily in large-caps and not mid-caps (where the returns and risk are higher) as well as in healthcare and metal stocks.
But, this fund has managed to bounce back smartly out of similar situations in the past.
The fund has polished its skills of protecting returns in tough times. For example, DSPML Balanced lost less than the average loss of other balanced funds in the first half of last year. In the first quarter of 2003, the fund slipped 1.28% in its returns while the rest had an average loss of 3.96%.
On an average, from its total investments, 64% has been invested in equity and 36% in debt.
Launch: December 1999
NAV: 22.05
Entry load: 1.5%
Exit load: Nil
1-year return: 36.87%
3-year returns: 34.12%
5-year returns: 19.95%
This is one fund that will not give you sleepless nights. You may not get extraordinary returns here, but the fund's consistency and 15% annualised returns since launch make it a classic balanced fund.
A glance at the fund's equity portfolio gives a different impression. Between 60% to 70% of total investments are in equity. This appears aggressive.
But you must note that the fund manager invests mainly in large-cap stocks and has only around 30% of his stock investment in mid-caps.
When mid-caps raced ahead in 2004, this fund clocked a below-average performance because of its large-cap stocks. A low exposure to financial services stocks also contributed to its mediocre performance that year.
This year, the investments in metals stocks and select energy stocks has hampered its returns.
But over its tenure, the fund's track record has been inspiring.
Cautious investors would like this portfolio.
Launch: November 1999
NAV: 20.453
Entry load: 2.25%
Exit load: Nil
1-year return: 60.87%
3-year returns: 40.11%
5-year returns: 20.43%
This fund is on steroids.
As on August 8, 2005, it delivered 25.87% since the start of the year. The average return of other balanced mutual funds was just 25.22%.
On a large-cap diet till late 2003, the fund missed the mid-cap boom that year. Hence the fund delivered just 62.88% that year when its peers delivered an average of 67%.
However, it reshuffled its portfolio in favour of mid-caps and small-caps towards the end of 2003. Since then, it has rewarded investors with extraordinary returns.
A high dose of mid- and small-cap stocks prove rewarding but the reward comes laced with a high degree of volatility. Therefore, investors should be ready to stay put for the long-term.
A well-diversified portfolio is also a plus here. The fund always keeps 20 to 30 stocks and no more than 6% of its total equity investment will be in one stock.
Kotak Balance has a reasonable long-term performance record. Long-term investors would be rewarded here.
Launch: October 1999
NAV: 23.89
Entry load: 2.25%
Exit load: Nil
1-year return: 52.17%
3-year returns: 38.20%
5-year returns: 20.13%
Don't expect miracles from this fund, though it will take you to your goal in a stable fashion.
The last four calendar years are testimony to this fact it has been consistently been delivering an above average performance.
Heavy investments in auto, healthcare and metal stocks has slowed down the fund's growth in recent times. However, some good picks in engineering, construction, services and consumer non-durables have more than compensated for it.
The fund has started to invest heavily in riskier mid-cap and small-cap stocks in recent times. In the first seven months of 2005, its allocation to these stocks was around 46%. But, it has invested in a greater number of stocks which brings down the risk. The total number of stocks was around 20 to 25 last year and this year, around 35 to 40.
Overall, this fund does not take an aggressive stance and conservative investors will like it.
Illustration: Dominic Xavier
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