Balanced funds, essentially hybrid products that combine equity and debt, have had a record year. Net inflows into this class of funds, at ₹19,743 crore for the financial year 2015-16, were more than the cumulative amount this category attracted in the last decade (FY06-FY15). Balanced funds have gained popularity due to their automatic rebalancing, equity fund-like taxation and recent track record of out-performing large-cap equity products.
Big inflows
With over 65 per cent assets invested in equity, balanced funds offer equity returns with more downside protection due to the debt exposure which helps the funds contain volatility. This has been marketed well by fund companies and distributors, leading to ₹19,743 crore inflows in FY16. FY15 was the previous land-mark year for balanced funds in terms of inflows at ₹9,826 crore. If you add up the inflows/outflows in between 2005-06 and 2014-15, total net inflows amount to ₹18,941 crore. This goes to show that investors took to balanced funds in a big way in the last couple of years.
Return-wise
The recent performance of balanced funds may have something to do with this. In a secular bull market, balanced funds will likely under-perform equity funds. But a secular bull market has been elusive in the last three years and this partly explains why balanced funds with a 10-year category average of 10.24 per cent are ahead of largecap equity funds (9.22 per cent), tax savings funds (9.80 per cent) and even the likes of the NSE Nifty and BSE Sensex benchmarks (8.5-8.8 per cent) currently. This out-performance is also evident, in parts, in the 5-year, 3-year and 1-year period. According to industry data, there are over two dozen balanced fund products and they oversee AUM of ₹39,146 crore. The biggest funds include the likes of ICICI Prudential Balanced Advantage Fund (₹11,021 crore), HDFC Prudence Fund (₹7,773 crore), Tata Balanced Fund (₹5,593 crore), SBI Magnum Balanced Fund (₹4,059 crore) and JM Balanced Fund (₹2,797 crore). However at an overall industry level, balanced funds still account for just 3 per cent of industry AUM.
Folio additions strong
Balanced funds saw nearly 5 lakh additions to folios in FY16 to touch a total count of 24.90 lakh. This was the best year in terms of folio additions since 2007-08 when 11.25 lakh folios were added. While FY16 saw net inflows, it also turned out to be a a year where new investors jumped into balanced funds going by folio additions. In previous years when inflows happened, investor accounts actually dropped. This contrasting situation happened in FY15 (6.2 lakh folio reductions), FY13 (1.16 lakh folio reductions), FY12 and FY11 (over 50,000 folio reductions each) and FY10 (2.72 lakh folio reductions) even though the years saw net inflows. This data shows that balanced funds have clearly emerged as a favorite with a particular set of investors.
In the past few years, investors have matured and now understand the nuances of investment in volatile times. With debt mutual fund taxation undergoing changes, constructing a on-shot equity plus debt portfolio through balanced funds seems to be catching on.
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