Balanced funds have been in the news recently on account of the Budget proposal which will force them to hold a higher equity component to be eligible for tax benefits associated with equity-oriented funds.
While some fund houses are likely to change the investment mandates of their existing schemes to permit a higher equity allocation; others have indicated that they would launch new schemes to comply with the new regulations. This augurs well for investors who will have more options available at their disposal.
At a time when most portfolios have become lop-sided in favour of equities (thanks to the seemingly incessant rally in equity markets), a balanced fund might be just what the doctor ordered. Powered by the presence of both equity and debt, they provide the investor an opportunity to diversify across asset classes.
Also, adherence to the pre-determined equity-debt ratio means that the fund manager has to regularly book the gains clocked (effectively the fund manager buys into equities in a falling market and books profits when markets rise persistently); this in turn, leads to gains being captured in the fund's net asset value (NAV).
We present 3 balanced funds which investors should consider adding to their portfolios. These funds have made the grade by delivering consistently on parameters like performance, restraining volatility, portfolio management style and adherence to investment objective among others.
However a disclaimer is in order here. Investors must take into account their risk profile, investment tenure, existing portfolio and investment objectives before making any investment decision.
Personalfn's recommended balanced funds
| Balanced Funds | NAV (Rs) |
Assets (Rs m) |
1-year (%) |
3-year (%) |
5-year (%) |
Std. Dev. (%) |
Sharpe Ratio (%) |
Equity (%) |
Debt (%) |
| HDFC PRUDENCE (G) | 95.82 | 16,456.8 | 55.4 | 55.8 | 40.0 | 4.39 | 0.57 | 60.4 | 39.6 |
| DSP ML BALANCED (G) | 35.37 | 3,327.4 | 60.9 | 51.0 | 30.5 | 4.05 | 0.53 | 68.4 | 31.6 |
| SUNDARAM BALANCED (G) | 31.11 | 402.2 | 54.5 | 45.3 | 27.5 | 3.56 | 0.56 | 63.5 | 36.5 |
| CRISIL Balanced Fund Index | 44.9 | 33.9 | - |
1. HDFC Prudence
Launched in February 1994, HDFC Prudence Fund easily ranks as one of the top performers in the balanced funds segment. With an NAV appreciation of 55.8% CAGR and 40.0% CAGR over the 3-year and 5-year periods respectively, the fund has managed to clock growth levels unmatched even by some diversified equity funds.
The fund's performance on the risk-adjusted return (Sharpe Ratio 0.57%) front has always been exemplary. Since inception, the fund has been managed by Prashant Jain.
2. DSP ML Balanced
With an NAV appreciation of 60.9% CAGR over the last 12 months, DSP ML Balanced Fund has outperformed some of its more illustrious peers from the balanced funds segment. The fund's steady investment style is noteworthy. Despite having increased its equity holding in recent times, the fund has been successful in keeping volatility (Standard Deviation 4.05%) at bay. Rajesh Kothari took over the fund's management from S Naganath in April 2006.
3. Sundaram Balanced
Among the most conservatively managed balanced funds, its performance on the returns front fails to reveal the true picture. Sundaram Balanced Fund has exposed investors to lower risk (Standard Deviation 3.56%) levels vis-à-vis peers and yet managed to pitch in an above-average performance on the returns (45.3% CAGR over 3-year) front.
With a Sharpe Ratio of 0.56%, the fund is equipped to find a place in moderate risk-taking investor's portfolio. The fund's equity and debt portfolios are managed by N. Prasad and Rahul Pal, respectively.
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