Balanced funds back on investors' radar amid volatile market

Investor folios surpass 2 million mark while assets more than doubled since FY14

Amid sharp volatility with key Indian stock indices trading about 10 per cent lower than their recent peaks seen early this year, investors are increasingly looking for balanced mutual fund schemes to get some risk cover.

Balanced funds, which typically invest 60-70 per cent of assets in equity and the rest in debt instruments, are back on investors' radar in the current financial year.

Since March, mutual fund industry has added 1.4 lakh new investors' accounts in balanced category - surpassing the 2 million mark. The industry witnessed gross sales of worth Rs 10,000 crore in the segment during the first four months of FY16 - which is around 15 per cent of sales of pure equity funds.

Interestingly, in the previous financial year, with over 30 per cent rally in stock market, investors had shunned investments in balanced funds as they flocked more to diversified equity funds. This led to closures of over half a million balanced fund folios in FY15.

However, scenario appears to be changing now on the back of corrections in stocks with no visible growth in corporate earnings. Investors are willing to take exposure in schemes which offer diversified portfolio from two asset classes - equity and debt.

According to S Naren, chief investment officer (CIO) of ICICI Prudential AMC, "The year 2015 is the year for investing in equities with a horizon of three years and more. We recommend defensive equity investing with products in the balanced advantage and dynamic asset allocation category as suitable ways to ride the volatility. These funds invest in equities when markets are cheap and book profits when markets are rising, thus limiting risk and aiming to provide good returns."

Over the last two years, since the current rally started, the balanced fund category has given an annualised return of 30 per cent. This means every investment of Rs 100, two years back, has now become worth Rs 170.

During April-July, there has already been a net inflow of Rs 8,162 crore - about 80 per cent of what was witnessed in FY15. The net inflows during April-July period in 2014 was a mere Rs 342 crore.

The recent strong inflows in the segment has pushed the total assets of balanced funds to Rs 33,365 crore in July - more than double of what was the case in FY14.

According to fund managers, balanced funds are the way to go ahead in current scenario. They add that correction in the market is due to factors like earnings being below earlier expectations and worries on growth not picking up. "We continue to believe that correction is an opportunity to invest. This phase does not affect the long-term compelling case for Indian equities with a moderated return expectation," stresses Naren.

Currently, mutual fund industry offers 26 balanced funds to investors. Some of them include ICICI Prudential Balanced Fund, ICICI Prudential Balanced Advantage Fund, HDFC Balanced Fund, HDFC Prudence Fund, Franklin India Balanced Fund and SBI Magnum Balanced Fund, among others.