The Hindu Business Line : SBI Magnum Balanced: Hold

Unitholders can retain their exposure in Magnum Balanced Fund. A high exposure to equity during the three-year bull rally has helped SBI Magnum Balanced Fund deliver an impressive performance through most of this period.

Over a one-year period, the fund has generated a return of 57 per cent, which makes it one of the top performers in the category. Its returns beat the benchmark Crisil Balanced Index by about 20 percentage points. Over a longer time-frame, however, HDFC Prudence still enjoys a better track record.

Suitability: The latter may also be better suited for those who have a conservative risk profile.

Prudence has maintained a 60 per cent equity allocation, compared to 65 per cent and more in most other balanced funds. Magnum Balanced, however, had about 75 per cent invested in equity as of April 30.

It also frequently makes "tactical" asset allocation calls, with its holdings in equity swinging widely from 62 per cent in November 2005to 86 per cent in March 2006. These calls have, no doubt, paid off for the fund over the past year. The fund may, however, not be suitable for investors who want a stable mix of debt and equity in their portfolios.

Notably, most balanced funds may no longer have the flexibility to substantially cut their exposure to equity in volatile times. Already, most have at least 65 per cent of their assets in equity.

Recent changes in the definition of "equity-oriented" funds, to determine the tax payable at the hands of the investor, are also likely to ensure that this bias towards equity remains in most cases.

According to the new rules, a fund should have at least 65 per cent invested in equity, as against 50 per cent earlier, for investors to enjoy the capital gains and dividend distribution tax benefits of equity.

Most balanced funds may, therefore, be forced to fix their equity allocation at 65 per cent for a greater part of the year, if they want their investors to enjoy tax benefits. The distinction between these funds and equity is, therefore, likely to blur somewhat.

In this context, Magnum Balanced may not have a much higher risk profile than others in its category. Balanced funds may, in general, be better suited for those who want at least a 65 per cent exposure to equity at any given time.

Portfolio overview: The fund invests in a good mix of large-cap and mid-cap stocks. About 30 per cent is invested in stocks with a market capitalisation of more than Rs 10,000 crore. The top ten stocks account for about 35 per cent of its assets.

Its top three sectors — consumer goods, IT and engineering — account for about a third of the portfolio. The fund invests mainly in corporate debt. It had about 10 per cent in cash as of April 30.

Fund Facts: SBI Magnum Balanced was launched in 1995. It has an asset base of Rs 215 crore. It offers dividend and growth options. The minimum investment is Rs 1,000.

More Stories on : Mutual Funds | Recommendation

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page