Balanced Funds: Mixed picture

Suresh Krishnamurthy

BALANCED Funds in India have never lived up to their expectations. Such funds are normally expected to balance the asset allocations within a pre-determined range.

However, funds have generally been functioning as asset allocation systems, shifting between debt and equity depending on their view of the market.

In the quarter just ended, a few funds have a much lower equity exposure -- a feature not associated or expected in the case of balanced funds. HDFC Children Gift Savings Plan has no exposure to equity. The fund's target asset allocation is 20 per cent in equity and the rest in debt. LIC Dhanraksha has 7 per cent invested in equity while LIC Dhansahayog has 22 per cent in equity. PNB Balanced Fund had invested 26 per cent in equity. Pioneer IT Pension Plan had invested 33 per cent in equity but this conformed more to its target asset allocation -- 40 per cent equity and 60 per cent debt. Not surprisingly, these funds ended at the top of the list of performers for the quarter.

Click here for Table

Funds that had a higher exposure to equity and still managed to perform better were JM Balanced Fund, Dundee Balanced Fund, HDFC Children Gift Investment, Birla Balance, Escorts Balance and Zurich Prudence. Equity exposures of these funds were in the range 40-60 per cent.

These funds benefited from either exposures to particular government securities in their debt investments or from their exposures to healthcare stocks in their equity investments. Among these funds, the performance of JM Balanced and Zurich Prudence stand out since they have been consistently delivering good returns over a longer period.

Among funds that lagged in terms of performance were Alliance 95, Tata Balanced Fund, Sun Balanced, DSP ML Balanced, HDFC Balanced and Pioneer ITI Balanced. All these funds had exposures to equity ranging between 56 per cent and 62 per cent. Alliance 95 suffered due to its large exposure to IT stocks at around 20 per cent. With IT stocks battered at the bourses, the 20 per cent exposure is enough to offset completely the gains of the debt portfolio and other equities.

Funds such as Tata Balanced, Sun Balanced and DSP ML Balanced had higher exposures to the finance sector too, apart from exposure to software stocks. Some of the finance stocks, such as SBI and ICICI Bank, were also on a sharp downtrend and this may have caused their poor performance. Overall, concentrated exposures proved to be their Achilles heel in the quarter ended September 2001.