Balanced funds gain among MF investors

Assets of such schemes have more than doubled in two years; 600,000 new accounts opened last year

Mutual fund (MF) investors are showing growing preference for balanced schemes. The assets under management (AUM) of balanced funds have more than doubled in the past two years, amid robust inflows and rising number of investor folios. Balanced schemes offered by MF houses invest in a mix of equity and debt insturments. During volatile times, these products offer downside protection cover, thanks to the debt component.

In March 2014, the total AUM for balanced funds was Rs 16,793 crore. These have since grown to Rs 42,695 crore, a rise of 155 per cent. Further, yearly net inflows have turned positive and were nearly Rs 20,000 crore in 2015-16, against a net outflow of Rs 1,986 crore in 2013-14.

The past financial year, in particular, was quite remarkable as traction towards balanced funds gained considerable momentum, with a little over 600,000 new accounts being opened. The correction in the broader market, marked with steep volatility, aided investors' preference for these funds.

Among schemes that have appealed to investors are ones with dynamic asset allocations, which change a mix of debt and equity depending on market conditions. One such fast-rising category are balanced advantage funds. These tend to book profit from equities when the market appears high and shift to debt instruments. Typically, they follow a strategy of selling stocks high and buying low.  ICICI Prudential Balanced Advantage Fund is one of the fastest growing with a dynamic asset allocation feature. The fund has grown from a paltry Rs 250 crore in 2013 to Rs 11,465 crore, taking more than a fourth of total assets in the balanced category.

Nimesh Shah, managing director, ICICI Prudential MF, says: "Dynamic asset allocation funds have been created to address the fact that investors shy away from investing when markets are cheap and rush to buy when valuations are high."

The past three years' annualised return of ICICI Prudential Balanced Fund is 17.37 per cent. There are other such schemes like SBI Magnum Balanced Fund, Birla Sun Life Balanced '95, Franklin India Balanced, HDFC Balanced Fund and Tata Balanced Fund, which have given a three-year annualised return in excess of 20 per cent.

Hemant Rustagi, chief executive at Wiseinvest Advisors, says: "There is potential for a further rise of balanced funds, as investors need protection on their investments. With the industry offering various products in the balanced category, such as debt oriented, equity oriented and now balanced advantage funds, there will be more opting for such schemes.”

The category average return of balanced funds with equity orientation is 17.2 per cent, against 16.1 per cent offered by large-cap equity funds. Further, balanced funds with asset allocation made a reasonable return of 15.3 per cent on an average during the same period.