How Good are Balanced Funds? | Value Research How Good Are Balanced Funds?

How Good are Balanced Funds?

How Good Are Balanced Funds?

An intrinsic element of balanced funds is that they protect the downside in a volatile equity market since the debt component acts as a cushion in a market downfall.

When we looked at the returns of all the open-ended, equity-oriented balanced funds for the last bull phase (May 15, 2006- January 8, 2008) and in the ongoing bear phase (January 8, 2008- November 17, 2008), we noticed that some of them failed to do so.

The best performers in the bull phase - ICICI Prudential Child Care Gift, Escorts Balanced, LICMF Balanced, Tata Balanced - which turned in an average return of 65%, have emerged as the worst performers in the rough phase of the market.   

ICICI Prudential Child Care Gift lost 61% in the market downturn. The average equity allocation of the fund was 75% in the bull phase and it did not get lowered in the ongoing bear phase. In fact, it was marginally higher at 78%.

Escorts Balanced, LICMF Balanced and Tata Balanced have each lost around 50% in the downturn. Though the average equity allocation of these funds has come down from the bull phase, it still hovered at around 65% in the declining market. But funds like Birla Sun Life Balance, HDFC Balanced, DSPBR Balanced and FT India Balanced also had an average equity allocation of nearly 65%. Yet their returns fell in the range of 35% - 40%.

LICMF Children Fund failed on both fronts. It delivered just around 47% in the bull run but lost nearly 70% in the bear phase. The reason being a low equity allocation (34%) in the bull run and a high one (75%) in the bear phase. 

UTI CCP Advantage, which had around 33% in cash in the declining market, has fallen the least at 19%.

On an average, the equity-oriented hybrid funds gained 48% in the bull phase and lost nearly 44% in the bear phase. On the other hand, the debt-oriented hybrid funds gained just 14% but fell by only around 12%.


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