Best balanced funds to invest in FY 2018 – 2019
A balanced fund is a fund which comprises of both stock component and bond component as well. Balanced fund provides a means to achieve Proper Asset Allocation and Regular Rebalancing requirements which most of the investors look for. Also known as hybrid funds, balanced funds are a combination of debt and equity and are preferred by average investors who are looking forward to invest in shares.
Before jumping into the list of top balanced funds to invest in 2018-19, let us review the benefits they provide:
- Best of Both Worlds
Balanced funds are suitable for investors who want to enjoy the returns from equity investments but with a safety cushion. Normally this is true for first time investors or investors which have low to moderate risk appetite. Since Balanced funds are a mix of Equity and Debt, they have lower volatility than the Equity Funds and their Returns are higher than the Debt funds. Though in a bull market these funds will not give you as much return as pure equity funds but the loss would be lower than those funds in a downward moving market.
The Balanced funds have to maintain the portfolio according to their mandate, for example, debt oriented balanced funds have to keep at least 65% of their investments in Debt instruments hence in whenever Equity portfolio of the fund crosses 35%, then Fund Manager will book profit from equities and rebalance the portfolio.
- Tax Efficiency
Equity oriented balanced funds have similar tax treatment as Equity mutual funds, i.e. Tax free after 1 year and 15% tax if redeemed before 1 year of investment. Hence, for people who want to take advantage of the safety of debt instruments without foregoing the tax efficiency of Equity funds can opt Equity oriented Balanced funds.
We recommend you to consider following factors while deciding to invest in Balanced funds:
- Consistency: Consistent performance of the funds is one of the key parameters based which we have shortlisted best balanced funds. We recommend you to keep a watch on the the past performance of the fund while deciding before you invest in these funds.
- Recategorization: As per the SEBI new norms on recategorization of mutual funds, there are 7 categories of hybrid funds.
- Conservative hybrid – these schemes invest around 75-90% of total assets in debt instruments and 10-25% in equity instruments
- Balanced hybrid – These schemes couldn’t invest in any arbitrage and mostly invests around 50-60% in either debt/equity related instruments
- Aggressive hybrid – The composition of these funds includes investments of around 65-85% of total assets in equity related instruments and the remaining in debt instruments.
- Dynamic asset Allocation – these are also known as balanced advantage funds. As the name says, the composition of investments in debt, equity instruments vary dynamically.
- Multi asset allocation – Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes
- Arbitrage funds – These schemes as the name suggests follows arbitrage strategy and invests atleast 65% of total assets in equity related instruments.
- Equity savings funds – Open ended scheme investing in equity – minimum 65% of total assets, debt – minimum 10% of the total assets. They also mention about the least hedged, unhedged investments in the scheme information document.
- Beta: It usually measures the market volatility of the fund. Lower the value of beta, safer is the fund to invest.
Best Balanced Funds
Tata Balanced Fund aims at creating a combination of equity and debt instruments which will increase the returns of the portfolio and at the same time it optimally manages the volatility of fund. The fund maintains the Equity Debt mix around ratio of 70-30. The fund’s returns have beaten the category in 3 yrs, 5 yrs and 10 yrs.
Highlights: Its 10 year returns of 13.54% are comparable to the returns from Large cap equity funds. The fund invests around 70% of its Equity portfolio in large caps and rest in mid cap while more than 95% of the Bond portfolio is invested in AAA rated securities and the rest in the AA rated securities. This fund is suitable for those investors who looks for relatively higher & tax efficient returns who can absorb moderately high risk.
Performance in last few years: This fund has been a consistent performer and has beaten the category in 7 out of last 10 years.
Fund manager: Pradeep Gokhale currently serves as the Senior Fund Manager at Tata Asset Management Limited. With over 25 years in total experience, Pradeep joined Tata Asset Management in September 2004 in investment department and was head of research prior to becoming a fund manager.
Risk & volatility measures:
The beta value for this fund as of now stands as 1.16.
The scheme has been ranked at No.2 in Balanced category by Crisil (as per the quarter ended Dec 2017). It invests around 65%-70% in equities and rest in debt. The equity portfolio has a higher than peers allocation to mid-cap and small cap funds, i.e. around 25%-30%. In debt it invests around 80% in AAA rated securities and majority of rest in AA rated.
Highlights: The fund has given stupendous return of 19.24% in last 5 yrs. The fund has beaten the category returns in 7 out of last 10 years. This fund is suitable for those investors who looks for relatively higher & tax efficient returns who can absorb moderately high risk.
Performance in last few years: Even after being a relatively aggressive fund, it has contained its downside in the crashes of 2008 and 2011.
Fund manager: Mr. Chirag Setalvad is the senior fund manager of this scheme who brings overall 14 yrs of experience to the table of which 11 yrs he has served as a fund manager.
Risk & volatility measures:
The beta value for this fund as of now stands as 1.04.
This is a comparatively new entrant in the balanced funds space, the fund was launched in 2011. The fund has an equity debt mix of around 70%-30%. The debt portfolio of the fund consists of high quality corporate bonds and G-secs with more than 80% investment in AAA rated securities and rest in AA rated. This scheme suits good for the investors who are looking for relatively higher & tax efficient returns who can absorb higher volatility than debt oriented balanced funds.
Highlights: It has a higher allocation to mid and small cap of around 25% in the equity portfolio. This has helped it in giving an excellent return of 19.52% in last 5 years. However, the fund’s performance in a downturn is yet to be seen.
Performance in last few years: It has beaten the category by an average of more than 3% in last 5 years.
Fund manager: This fund is managed by Mr. S. N. Lahiri (investments in equity and equity related instruments)
Risk & volatility measures:
The beta value for this fund as of now stands as 1.08.
Have a look at the performance summary along with some key parameters in the table below :
To summarize, Balanced funds are very good tool to achieve diversification as they invest in both equity and debt. Moreover, you do not have to worry about rebalancing as it is handled by the fund manager. Also, through Equity oriented balanced funds you can use a debt cushion without foregoing the tax advantages of equities.
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