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  • Writer's pictureSahastha

Balanced Fund – Any better?

Updated: Oct 4, 2023

A few days earlier when I was surfing through TV channels, I saw the ad of ICICI prudential balanced advantage fund. The man in the ad was asking where to invest since he’s skeptical about the market. So his friend suggested him to invest in balanced fund as they keep changing the allocation of debt and equity based on the market conditions to provide you optimal returns with minimal risk. After watching this ad I thought of looking into these balanced funds and compare them with pure equity funds.

Balanced Advantage funds

Sr

No.FundLaunchAsset Allocation% fall in Mar 20201.HDFC Balanced Advantage FundJan 2013Equity- 75.2%

Debt- 13.4%

Cash -11.4%

-31.662.ICICI Prudential Balanced Advantage FundJan 2013Equity- 35.6%

Debt- 26.9%

Cash -37.5%

-26.733.Kotak Balanced Advantage FundAug 2018Equity- 36.5%

Debt- 25.3%

Cash -38.2%

-26.07

Large cap Equity funds

Sr No.FundLaunchAsset Allocation%  fall in Mar 20201.SBI Bluechip FundJan 2013Equity- 97.3%

Cash – 2.7%

-36.52.ICICI Prudential Bluechip FundJan 2013Equity- 91.8%

Cash – 7.8%

-35.943.Axis Bluechip FundJan 2013Equity-  96.7%

Cash – 3.3%

-29.72

Dynamic asset allocation/ balanced advantage funds claim to give excellent downside protection in case of adverse market condition. The main advantage of these funds are their ability to maneuver between equity/cash/debt dynamically which puts investors at the ease of not worrying about increasing or decreasing exposure to equities when valuations run-up. Such funds are being positioned by asset managers as apt for taking tactical calls.

Now the question comes, are they able to do so?

From 20th Feb 2020 to 23rd March 2020 Nifty 50 fell approx. 36%*. This is the most recent major crash post 2008 housing bubble crash. In comparison top 3 dynamic asset allocation funds fell 26%-32% and top 3 large cap equity fund fell 30%-36%. HDFC balanced fund fell almost as much as the Index and other two balanced fund also fell considerably. So, where is the downside protection they are promising?

Some funds with lesser AUM did much better like Edelweiss Balanced Advantage with 16% fall.

At this moment HDFC balanced advantage fund is keeping 75% in equity, while next two big funds as per AUM, ICICI and Kotak keeping equity in range of +-35%. So, if you are just relying on 1 fund to achieve all your goals and that fund is quite exposed to market risk in such uncertain time and bubble territory, keep yourself ready to see a sudden fall in your lifetime’s earning in the case of a crash. Funds who are keeping cash in existing market will fair much better than funds who are neck deep in equity.

Leaving everything to a fund manager also comes with it’s own risk. In this market, where MF agents and financial advisors selling balanced funds left and right without even doing proper due diligence and back research, it can hurt your portfolio if you are keeping considerable portion of your portfolio in such funds.

Don’t just get sold by advertisement, do your own research to test their claims.

*Nifty on 20th Feb- NSE Nifty was trading at 12,117.

Nifty on 23rd Mar– NSE Nifty was trading at 7,743.

Return– (7,743-12,117)/ 12,117= -36.098 %

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