Balanced funds continue to attract investors

Balanced funds are attracting investors' money as is reflected in the swelling AUMs for these funds. In not more than 18 months the total assets under management in the industry has grown by 32 per cent. Whereas the AUM for the balanced funds has increased by 2.1 times during the similar period. Relatively low volatility compared to equity funds and a possibility of generating regular income is what a balanced fund promises. This unique offering has investors glued to the balanced funds. 

Balanced funds' superior performance over long term i.e over five years and ten years has led to investors thinking whether there is any merit in investing in 100 per cent equity oriented funds.  Balanced funds indeed have generated similar returns to that of equity oriented diversified funds. Infact on risk adjusted basis selected balanced funds have outperformed equity funds. 

Some of the best performing balanced funds are HDFC Balanced, Tata Balanced, HDFC Prudence, ICICI prudential- Balanced Advantage and SBI – Magnum Balanced. These funds have delivered anywhere between 14 per cent to 18 per cent on an annualised basis over a 5-year period.
However, experts believe that balanced funds with exposure of 70 per cent to equity markets may not help reduce risk as 70 per cent exposure to equity adds volatility and it defeats the purpose of investing in balanced funds. Balanced fund to be truly balanced, should allow the portfolio manager a flexibility to shift within asset classes depending upon the forecast.

The basic advantage that a balanced fund provides to investors is that the fund helps one generate returns with a cushion of safety, as certain predetermined percentage is invested in Debts.  Investors may look at debt oriented balanced fund, which actually caters to the objective of investing in balanced fund or can take exposure to 100 per cent equity funds rather than equity oriented balanced fund.