Time to look at Balanced Funds more seriously?

The Assets Under Management (AUM) have more than doubled in last two years under the Balanced fund category and over 600,000 new accounts have been opened in last year alone. This should not surprise many as investing in Balanced fund looks to be the most logical way of investing in current volatile environment with downside risk always present in equity market owing to global events and certain market risks.

Talking about past two years, the correction in broader markets and increased volatility could be the reason why investors may have chosen the balanced approach rather than taking 100 per cent exposure to equity via equity oriented funds. 

To understand popularity of Balanced funds it is enough to understand what Balanced funds are and how they function. Simply put balanced schemes are offered by fund houses that invest in mix of equity and debt instruments. The advantage of such schemes is that it provides downside protection during volatile markets.

It is observed that the dynamic asset allocation schemes are most popular with investors as it provides flexibility to the investors to change the mix from debt to equity depending on the market conditions. Under the balanced advantage funds the fund manager books out of equity whenever he or she feels that market is high and shifts allocation to debt instruments. ICICI Prudential Balanced Advantage Fund is one of the examples of such funds which has grown in asset size considerably over a two year period. 

HDFC Balanced Fund, Franklin India  Balanced Fund, SBI Magnum Balanced Fund and Tata Balanced Fund are few of the top performing funds under the Balanced fund category which have given more than 20 per cent annualised returns over a 3 year period. 

Balanced fund category will see further improvement in assets under management under all the three variants viz., debt oriented, equity oriented and balanced advantage funds, owing to better  performance and low volatility offered to the investors. Another aspect for investors to consider, will be a lower expense ratio compared to a equity oriented diversified fund.