ICICI Prudential MF's attraction story

Balanced advantage fund now country's largest in equity segment, gaining much currency with the risk-averse, with annualised return much above Sensex's since launch

ICICI Prudential Balanced Advantage Fund, with an asset size of Rs 16,250 crore, has become the country's largest equity-oriented mutual fund (MF) scheme.

With a low risk profile, it has gained among the risk-averse. Since its launch in 2006, it has given an annualised return of 11 per cent. In comparison, the benchmark Sensex has given one of seven per cent in this period.

The scheme is managed by the fund house's Manish Gunwani and Rajat Chandak on the equity side, and Manish Banthia in the debt segment. The equity-debt mix changes with market conditions -- in favour of debt if equity valuations turn expensive and vice versa.

As on end-October, 60.4 per cent of its assets are in the equity spread, across 79 stocks. HDFC Bank, Motherson Sumi, ICICI Bank, Hindustan Unilever and Maruti Suzuki were the top five holdings. About a third of the assets were in debt instruments; 6.3 per cent is its cash and equivalent holding.

Interestingly, until three years earlier, the scheme's asset size was less than Rs 500 crore. Since then, investors have taken a fancy to it. Last month, it overtook HDFC Equity as the country's largest equity scheme, with a 64-fold jump in asset size over three years.

In this period, the MF sector's equity asset base had doubled, while the asset base of balanced funds had risen four-fold. In these past three years, the fund's annual return was 14.7 per cent. High volatility in the market worked in its favour; it positions itself as a tool to ride such volatility.

In FY12, when the Sensex lost 10.5 per cent, the scheme gave a return of 5.7 per cent. In FY13, it gave 13.2 per cent, versus a Sensex return of 8.3 per cent. In FY14, a 20.3 per cent gain against 18.7 per cent from the Sensex.

Further, in FY15, when the Sensex jumped nearly 25 per cent, this fund managed to again outperform, with 26.6 per cent gain. In FY16, when the markets turned choppy again and the Sensex lost 10.3 per cent, this fund continued with a positive return, though a marginal 0.7 per cent.

This alpha-generation in recent years has added to the scheme's appeal. Nimesh Shah, managing director, ICICI Prudential MF, says for an investor, limiting the downside is as important as generating high return. Hence, this scheme appeals to a wide set.

Dhirendra Kumar, chief executive of fund tracking entity Value Research, says: "It is a scheme for conservative investors who fear market volatility. The returns have been stable and decent. New investors can consider balanced funds due to their in-built risk mitigation capabilities. As per the situation and need, the fund keeps changing its allocation to equities and debt, which helps it navigate the risk associated with market volatility."

Kumar says investors with risk appetite should instead look at a pure diversified equity fund, as these would do better when the market rallies. Experts say dynamic allocation schemes might not work well in a bull cycle.

Although, ICICI Prudential Balanced Advantage has been around for a decade, it has not yet seen a complete bull cycle, such as the one seen between 2004 and 2008. Between end-2013 and mid-2015, when the Sensex saw a good run, its alpha-generation was nominal compared to some other pure-equity schemes.