Himadri Buch Moneycontrol News
With equity indices scaling new highs, it is the under-rated balanced funds which are in demand with investors looking for a piece of the stock market action. To some market experts, this trend reflects the concerns investors have about expensive valuations.
The Sensex and Nifty have rallied over 22 percent so far this calendar, as investors are betting on revival in economic growth and an uptick in corporate earnings.
Typically, balanced funds buy a combination of equity shares and fixed income instruments and provide both income and capital appreciation while avoiding excessive risk. These funds are suitable for investors who have low-risk appetite.
The diversified holding ensures that these funds manage downturns in the stock market without too much of a loss as compared to an all-equity fund.
This category witnessed consistent net inflows as the equity market was nearing its all-time high.
As per the data on Association of Mutual Funds in India, balanced funds received net inflows of Rs 7,458 crore in June 2017 as against inflows of Rs 2,402 same time a year ago.
Moreover, AUM of balanced funds more than doubled to Rs 1.1 trillion as of June 2017 from Rs 46,000 crore a year ago, while folio counts jumped 55 per cent to 40,62,169 from 26,22,051 during the same period.
Market experts attributed increase in AUM in balanced funds to the ongoing market rally since these funds invests both in equity and debt, providing a cushion to investors whenever the markets correct.
"The rising AUM of balanced funds is essentially because of upside in equities but given the current rally in the market there is a concern about one way rally in the market. Therefore, investors are reducing their risk by part of debt exposure via investing in balanced funds,” said Gautam Duggad, Head-Research, Motilal Oswal Securities.
Balance fund’s mandate is to balance out the risk and reward quotient by investing in a mix of stocks and debt securities. The equity portion forms 65 percent or more of the assets managed; the rest is invested into debt and money market instruments.
The primary objective of the fund manager is to achieve diversification in one product to increase returns along with stability of fund value. Their equity exposure can vary from 65 -85 percent depending on the fund mandate and market condition.
If one would invest in debt and equity mutual funds separately, the high volatility of equity portion may not suit investors resulting in lower equity allocation than required. Whereas, if the investor takes positions in equity through balanced funds, they get to realise equity growth potential and lower fund volatility.
In terms of performance, among top 10 balanced funds, Principal Balanced Fund delivered the highest average return of 26 percent in the last one year, followed by HDFC Retirement Savings Fund that gave 24 percent average return.
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