Invest into “BALANCED FUNDS”

INVESTMENT STRATEGY: Invest into “BALANCED FUNDS”

Buy Online Buy Offline

Our investment strategy for last two months has been focused on balanced funds. This month also we continue with the same. In the current scenario of volatility in Equity Markets, Balanced funds can give investors the participation in the equity markets with a flavor of debt instruments.

Balanced funds also called as asset allocation funds, are a type of hybrid funds. They provide opportunities for Income and Capital Appreciation by investing in a portfolio of equity, fixed income instruments, money market instruments and preference shares. Most of the balanced funds have 65-85% allocation towards Equity and Equity related instruments and 15-35% towards Fixed Income related instruments. The strategy involves investing in stocks (for growth) and fixed income instruments and money market instruments (for income).

Advantages of investing in Balanced Funds:

• An option of investing in a single mutual fund that provides both growth and income objectives.
• The fund manager has the flexibility to move across two asset classes (equities and debt) depending on the opportunities in the respective markets.
• Follow a more disciplined approach as compared to equity funds.
• Fund managers follow the disciplined approach of booking profits in the rising stock markets, keeping the equity allocation at the proposed levels.
• Tax implication is like any other equity fund i.e. dividends are tax-free in the hands of investors. The Capital Gains taxation is also similar to any other equity fund.

Balanced funds are suited for conservative Investors who do not have an appetite for volatility but intend to get benefited from investing in stock markets. Conservative or first time investors should have some allocation of their investments into Balanced Funds.

We recommend investments into Balanced Funds like HDFC Prudence Fund, Birla SunLife’ 95 Fund and DSP ML Balanced Fund. These focused funds have outperformed the broad benchmark indices over the last one-year.

HDFC Prudence Fund is a balanced fund having an exposure of 75.3% in equities. The fund manager says that the markets over the long term are still good, but may be volatile in the short run due to global uncertainties. The fund manager feels that one needs to watch out for the US Fed’s decision as any rate cuts by the US Fed would lead to increase in liquidity. Any rate cuts by the US Fed would have a short term impact on the markets. The fund manager is bullish on capital goods, infrastructure financial service and Media & Entertainment companies. The fund manager is looking to construct a portfolio, which has a mix of large caps and good quality mid caps. During the month, the fund has consolidated its holdings in Zee Entertainment and ICICI bank while it has taken fresh exposure in Dr. Reddys and Gammon India. Fund exited out of ONGC and BHEL while it has reduced exposure in Maruti and Crompton Greaves. The fund is recommended to investors with moderate risk profile.

Birla Sunlife’95 Fund is a balanced fund. The fund has 69.6% exposure to equities and rest is invested into debt. The fund expects the broad market to move sideways but select stocks would continue to do well. Fund manager believes that India is entering a period of increased stability with limited impact on growth. Fund manager has a view that valuations will continue to remain in higher zone, overseas as well as domestic liquidity will be good. He expects the market to remain steady at current levels. The fund has added new positions in Glenmark Pharma, GVK Power & Infra, Indiabulls Financial and Bajaj Auto. The fund has exited out of Hero Honda, Cipla, United Phosphorus and Oriental Bank. Under debt, the fund has invested into a mix of PSU bonds and securitized debt. The fund has a quality portfolio with 100% of the total debt assets in AAA or equivalent rated papers. The fund is recommended for investors with moderate risk profile.

DSP ML Balanced Fund is a balanced fund which invests in stocks with a long-term investment horizon. The fund is conservatively managed. The equity exposure usually rages from 65-75%. The fund has 73.9% exposure to equities and rest is invested into debt. Fund manager does not expect a sharp correction from current levels and expects a sharp run up on back of rate cuts in US, Europe and Japan. But inspite of this optimism he is cautious on the markets and is diversifying his portfolio. He continues to be positive on sectors like Capital Goods, Engineering, and Construction. The fund manager has exited from Sterlite Optical, Indusind Bank and Bank of Baroda. It has also reduced exposure in Reliance Industries. The fund has taken fresh exposure in BPCL, ICICI Bank and Glaxo Smithkline while it has consolidated its position in Tata Steel. The fund is recommended for investors with a moderate risk profile with a long-term horizon.

Performance as on January 31, 2008
		Absolute		Compound Annualized
Scheme Name	NAV	3 Months	6 Months	1 Year	3 Years	Since Inception
HDFC Prudence Fund	144.74	-4.48	11.17	23.71	36.63	23.07
Birla SunLife 95 Fund	234.36	0.54	12.33	30.36	32.34	27.51
DSP ML Balanced Fund	50.15	-2.91	13.93	28.29	31.78	20.39
Indices
Crisil Balanced Fund Index		-5.75	12.80	22.70	24.65

Categories: Analysis, Balanced Funds, investment, Mutual Funds, Stratefy