Mutual fund investors and advisors have been taking a lot of interest in balanced funds or equity oriented hybrid funds for quite some time now. Balanced Funds are the right funds for SIP with 3 year time horizon.

Since the investors invest in a combination of equity and debt, they are comparatively less volatile than pure equity funds that invest their entire capital in stocks.

This is the reason why most mutual fund advisors suggest balanced mutual fund schemes to first-time investors in mutual funds and extra conservative equity investors.

Balanced Funds

Balanced funds are investment products, where a mutual fund company invest the money collected from investors into both debt and equity. These are diversified mutual funds having a perfect balance between risk and returns on investment.

It is suggested to invest in these funds for an ideal investment duration of 2-3 years.

These are broadly of two types:

  • Equity oriented balanced funds: Major portion of fund portfolio consists of equities, at least 65%, and rest in debts. Aim here is to minimize risk on investment
  • Debt oriented balanced funds: Major portion of fund portfolio consists of debt and rest in equity. Aim here is to increase return on investment.

Investing in these funds can be done via lumpsum as well as via Systematic Investment Plan (SIP).

An investor having INR 100 for 10 years will stay invested for the entire period of 10 years. But in case of SIP if INR 10 is invested every year for 10 years, then first installment of INR 10 will be invested for 10 years, next installment for 9 years and so on. So here the growth is less.

HDFC Balanced Fund:

HDFC Balanced Fund is more than 10 years old and is consistently performing better than its benchmarks.

HDFC Balanced Fund is an equity oriented balanced fund where majority of its investments have been made in large cap funds.

Its an equity oriented fund with 70 % investments in equity. Out of the equity, majority of the asset allocation has been in large cap fund. Fund has made investments in different sectors with maximum allocation in Financial Services. Debt investments have majorly been in Sovereign Bonds and Financial Services sector. Risk is higher compared to benchmark. Fund is more than 10 years old. AUM is more than 10000 crores. Returns tend to o low once AUM exceeds certain amount.

HDFC Balanced Fund is a great fund to invest in. Its top holdings include HDFC Bank Ltd, ITC Ltd, Infosys Ltd, Larsen & Toubro Ltd etc.

If the investor has more funds to invest and he intends to diversify, then he/she can definitely look to invest in Balanced Fund. Balanced Funds are preferred over other funds because these funds have a diversified portfolio of debt and equity and suits the needs of the investors, since here the risk gets minimized because of the involvement of debt element as well.

Risk Moderate
Expense Ratio 1.98 %
Fund size 19169 Cr
1 year Return 17.75 %
3 year Return 11.35 %
5 year Return 19.27 %

 

Company Sector
Balkrishna Industries Ltd Automobile
Tata Motors Automobile
Aarti Industries Ltd Chemicals
KEC International Ltd Construction
Hero MotoCorp Ltd Automobile

ICICI Prudential Balanced Fund:

The fund invests in equities as well as fixed income and money market instruments. It invests minimum 60 % in equity and balance is invested in debt related instruments.

This is the fund that has done better than its balanced funds category benchmark and has given 18.47 % annualised returns in last 5 years and 14.89 % returns in the last 1 year. This fund has been constantly performing good during share market corrections and during volatile markets making it a great mutual fund scheme. If an investor is a moderate risk taker and willing to invest for medium to long term, he / she can invest in this scheme.

Fund managers for this fund are Sankaran Naren, Manish Banthia and Atul Patel. On the equity side, the fund is known for its contrarian investment strategy. This is an important factor that differentiates the fund from other balanced funds. The fund managers are not interested in carrying out inconsistent stock selection strategy and show higher returns.

The fund has the right mix of big sized established companies on the equity side. Noteworthy companies in sectors such as telecommunications, power and Information Technology, which may not be doing that well, may see a turnaround in revenue cycle in the upcoming 2 years are the ones which have attracted the attention of the fund managers.

On the debt side, the fund’s portfolio includes government securities and bonds with more than AA ratings, which gives reasonably good assurance to investors about the safety of their investment.

The fund has been a top performer and has given 16 to 20 % returns in the last 3 and 5 year tenure, though its category of funds has given 14 and 16 % returns during the same tenure.

Risk Moderate
Expense Ratio 2.19 %
Fund size 25957 Cr
1 year Return 14.89 %
3 year Return 11.19 %
5 year Return 18.47 %

 

Company Sector
ICICI Bank Ltd Financial Services
NTPC Ltd Energy
Infosys Ltd. IT
ITC Consumer Goods
Housing Development Finance Corporation Financial Services

 

Birla Sun life Balanced 95 Fund:

This scheme invests upto 60% in equity and balance in debt related instruments.

This is the scheme that has performed better than its balanced funds category benchmark and has given 17 % annualised returns in past 5 years and 13.74 % returns in the past one year.

This scheme has done well in the long run of 10 years where it has given 12 % annualized returns. Many of the investors might be still investing for more than 10 years as this is a very famous fund.

In terms of portfolio construction equity shares contribute 73.7% of Birla Sun Life Balanced 95 Fund portfolio mix, while debt instruments contribute 18%. 8.3% of the assets are kept in cash or cash equivalents.

The equity portion of the fund has a mainly been invested in large cap stocks and the investment style is growth oriented. It is quite well diversified with its top 5 holdings, Government Securities, ICICI Bank, HDFC Bank, Infosys and Government Securities accounting for less 22% of the total fund value.

The quality of its debt portfolio is also quite good with moderate interest rate sensitivity. The yield to maturity (YTM) of the fixed income portion of this fund is better than the category benchmark. While the average maturity of the Birla Sun Life Balanced 95 Fund fixed income portfolio securities is also more than the category average, in the current interest rate environment, it might get healthy returns for investors.

Risk Moderately high
Expense Ratio 2.27 %
Fund size 13595 Cr
1 year Return 13.74 %
3 year Return 9.53 %
5 year Return 17.05 %

 

Company name Sector
HDFC Bank Ltd. Financial Services
CBLO(CCIL) Current Assets
ICICI Bank Ltd. Financial Services
6.79 GOI May 15 2027 Sovereign
8.13 GOI Jun 22 2045 Sovereign
Infosys Ltd. IT
Eris Lifesciences Ltd. Pharma

 

Reliance Regular Savings Fund:

The Reliance Regular Savings Fund Balanced scheme is for investors looking for long term capital increase with moderate levels of risk. As such the fund is right investment option for investors in the moderate risk category, who are planning for retirement or have long term financial goals.

The fund was launched in 1995 and has approx 2,32,169 crores of assets under management. The expense ratio of the fund is 1.97 %. The fund house, Reliance Mutual Fund, is one of the largest mutual fund companies in India. The fund managers of this scheme are Sanjay Parekh and Amit Tripathi.

In terms of portfolio construction equity contributes 71.6 % of the portfolio mix, while debt and cash comprises 26.6 % and 1.8 % respectively. The equity strategy of the fund managers is a well judged mix of focus and diversification.

The fund managers aim to generate significant alphas through active sector management. The fund has concentration on large cap with 79.9 % of the portfolio forming of by large cap companies. In the small and midcap segment, the fund managers try to pick up companies with significant price value gap.

Risk Moderately high
Expense Ratio 1.97 %
Fund size 11334 Cr
1 year Return 18.49 %
3 year Return 11.31 %
5 year Return 17.41 %

 

Company name Sector
HDFC Bank Ltd. Financial Services
Yes Bank Ltd. Financial Services
Grasim Industries Ltd. Cement & Cement Production
Reliance Industries Ltd. Dec 24 2020 Energy
ICICI Bank Ltd. Financial Services
Infosys Ltd. IT
Larsen & Toubro Ltd. Construction

 

SBI Magnum Balanced Fund:

Among balanced funds, SBI Balanced Fund has doing very well in the last 3 year and 5 year tenure compared to its peers and benchmark index.

The fund has given 9.65 % and 17.45 % returns in the last 3 year and 5 year tenure, respectively, while its peers in the same sector have given 7.76 % and 11.69 % returns during the same tenure. On the equity side, the fund has a lot of exposure to large cap and mid-cap companies. On the debt side, the scheme has considerable exposure to government and AAA rated securities. Long-term investors can consider investing in the fund for a tenure of atleast 3 years.

The fund has invested in diversified large and mid cap companies which have good earnings’ growth. Some of these companies are HDFC Bank, ICICI Bank, Bharti Airtel, GRUH Finance Ltd.

Risk Moderate
Expense Ratio 1.97 %
Fund size 17955 Cr
1 year Return 17.75 %
3 year Return 9.65 %
5 year Return 17.45 %

 

Company Sector
HDFC Bank Ltd Financial Services
6.68 GOI Sep 17 2031 Sovereign
ICICI Bank Ltd Financial Services
Bharti Airtel Ltd Telecom
7.17 GOI Jan 8 2028 Sovereign

 

ICICI Prudential Balanced Advantage Fund:

ICICI Prudential Balanced Advantage Fund, the biggest in the funds category with assets of Rs 24,228 crore under management, uses the price to book value ratio of the market, to decide its equity allocation. Rebalancing is done on a regular basis. Its equity exposure can range anywhere between 30 % and 80 %, with debt contributing the rest.

For example, when the Sensex was at 23,002 on February 29, 2016, with the price to book value of the Nifty at 2.81, the fund had a 76 % net equity exposure. With valuations going up, the fund has reduced its equity exposure to 37 % as of October 2017.

Over the last year, the fund has given a return of 12.19 %, and it also leverages derivatives to hedge against the fall in prices or get arbitrage returns. The equity part is primarily invested in large cap stocks, while in the debt portfolio, the fund does take some duration calls help make the most of rate falls. It also has some part allocated to below AAA corporate bonds for higher accruals.

 

Risk Moderate
Expense Ratio 2.23 %
Fund size 24228 Cr
1 year Return 12.19 %
3 year Return 9.27 %
5 year Return 14.53 %

 

Company name Sector
CBLO(CCIL) Current Assets (Money Market)
Current Assets Current Assets
HDFC Bank Ltd. Financial Services
Motherson Sumi Systems Ltd. Automobile
8.85 HDFC Bank Ltd. Financial Services
Hindustan Unilever Ltd. Consumer Goods

 

Large cap funds

Large Cap Funds are generally the ones with huge market capitalisation. Large cap funds are known to offer stable and sustainable returns over a period of time, but might be outperformed by small and mid cap funds, which have higher risk exposure. Investors willing to take little bit high risk can invest in large cap funds, since these funds are riskier compared to balanced funds.

Volatility of shares in large cap funds is comparatively low, which makes it a safe investment. Moreover, future prospects of large cap companies is great. Also the Foreign Institutional Investors (FII) choose to invest in large cap funds. After reading the above mentioned information, an investor can s decide whether he wants to invest in large cap funds or not.

SBI Bluechip Fund:

This fund is one of the most persistent performers across market cycles. Sohini Andani has been managing the fund for approx. 7 years. The fund has allocated 80% in large cap companies and remaining money of the portfolio is invested in mid cap companies.

Andani follows a bottom up approach which gives a good idea about financial and sectoral condition of companies. This gives high degree of clear picture as to how a company would do in a given sector in the long run.

This approach has given high dividends to investors. In the last 3 year and 5 year tenure, the fund has given close to 10.28 % and 18.34 % returns while its benchmark index NIFTY 50 has given 7.86 % and 11.86 % returns, respectively, during the same tenure.

In the last six months, Andani has taken exposure to companies in the financial services space. Given the fact that financial services is one of the important sector that support the economy, these companies are anticipated to do good in the coming quarters. A few noteworthy companies Andani has taken exposure to are HDFC Bank, Larsen and Toubro, ITC and Mahindra and Mahindra.

Risk Moderately high
Expense Ratio 1.97 %
Fund size 17869 Cr
1 year Return 17.47 %
3 year Return 10.28 %
5 year Return 18.34 %

 

Company name Sector
CBLO(CCIL) Current Assets(Money Market)
HDFC Bank Ltd. Financial Services
Larsen & Toubro Ltd. Construction
Nestle India Ltd. Consumer Goods
Mahindra & Mahindra Ltd. Automobile
State Bank of India Financial Services
Hindustan Petroleum Corporation Ltd. Energy

 

Mirae Asset India Opportunities Fund:

Among the large cap mutual funds, which have high concentration on quality of companies, Mirae Asset India Opportunities has differentiated itself by performing constantly well by sticking to its investment mandate. The mutual fund concentrates on two key principles: One, purchasing companies that have high return on capital employed and have generated constant and incremental cash flows. Two, attractive valuations.

These factors have played a very important role in the fund’s outperformance. In the last 3 year and 5 year tenure, the fund has given 12.8 % and 21.3 % returns respectively, while its benchmark NSE 50 has given 7.86 % and 11.86 % respectively over the same tenure.

In buying large cap companies, the fund’s manager Neelesh Surana has been very careful about the valuations of the companies. The fund is being also managed by Harshad Borawake. The fund’s managers have purchased in companies, which reflect the value theme. A few noteworthy companies are HDFC Bank, Infosys and Larsen and Toubro.

Risk Moderately high
Expense Ratio 2.39 %
Fund size 6123 Cr
1 year Return 22.93 %
3 year Return 12.80 %
5 year Return 21.30 %

 

Company name Sector
HDFC Bank Ltd. Financial Services
ICICI Bank Ltd. Financial Services
State Bank of India Financial Services
Infosys Ltd. IT
Larsen & Toubro Ltd. Construction
Maruti Suzuki India Ltd. Automobile

 

Reliance Top 200 Fund:

Reliance Top 200 has made a portfolio of companies that are leaders in their respective businesses. While large caps contribute 84.6 % of the fund’s portfolio, mid cap contributes 15.4 %.

Essentially, the fund manager sticks to the growth at reasonable valuation philosophy and picks companies that can give a 3 to 5 % higher earnings growth than the benchmark. Companies that show scope for considerable betterment in return on equity over a three to four-year tenure find their way into the fund’s portfolio.

The fund is a mix of 40 to 45 shares, of which top 10 contribute approx 40 to 45 % of the portfolio. The fund manager is now bullish on corporate banks, engineering, consumption and pharma as he believes valuations are cheap and earnings could get better as growth comes back.

The fund has performed better than its benchmark comfortably by 3 to 4 % over the past 1, 3, 5 and 7 year tenure.

The fund has increased allocation to beaten down technology and pharma sectors by adding Infosys and Sun Pharma. Stocks like TVS Motors, Bajaj Finance and Bharat Forge were good performers over the past year.

Risk Moderately high
Expense Ratio 1.98 %
Fund size 4149 Cr
1 year Return 22.67 %
3 year Return 9.58 %
5 year Return 18.53 %

 

Company name Sector
ITC Ltd. Consumer goods
State Bank of India Financial services
Infosys Ltd. IT
ICICI Bank Ltd. Financial Services
HDFC Bank Ltd. Financial Services
Larsen & Toubro Ltd. Construction
HCL Technologies Ltd. IT

 

Conclusion:

Investors can invest in an SIP for 3 years in the above mentioned Balanced Funds or in the large cap funds. Both are equity oriented funds, but Balanced Funds are less risky as compared to the large cap funds. Investors having a little bit high risk appetite can invest in large cap funds, otherwise they can invest in Balanced Funds.

Happy investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.