3 Best Balanced Mutual Funds for 2018 in India

Balanced funds invest in a combination of equity and debt. They are relatively less volatile than pure equity schemes that invest their entire corpus in stocks. They earn the “balanced” moniker by keeping the balance between the two asset classes pretty steady, usually placing about 65% of their assets in stocks and 35% in bonds.

Let me explain with an example why balanced funds are better in volatile market conditions:

Assume a balanced fund invests 65% in equity and rest 35% in debt instruments. If the investment amount is Rs 1 Lakh, it invests Rs 65,000 in equity and Rs 35,000 in debt. Assume the stock market returns 15% in the bull run and 5% in the bear run. Debt being a safe instrument we will assume returns of 6% in all conditions.

You will get around 12% returns in the bull market (65,000*12% + 35,000 *6%)

You will get approx 5.35% returns in the bear market (65,000*5% + 35,000*6%)

As you can see the downside risk is reduced compared investing in purely equity.

Upwardly has handpicked 3 Balanced Funds that are best of investing in 2018.

1. ICICI Prudential Balanced Fund

This fund allocates over two-thirds of the portfolio to large-cap stocks, which is higher than the peers’ allocations. The fund follows a blend of growth and value for its investing style. For the debt portion, the fund relies more on duration than credit calls to improve returns. Sovereign and money-market securities dominate its debt portion of the portfolio. On a three-year and five-year basis, the fund has outperformed its benchmark by 7 percentage points and the category by 2–3 percentage points. A SIP worth ₹5,000 in this fund started 5 years ago is worth ₹4.9 lakh now.

2. HDFC Balanced Fund

The fund maintains a more or less steady-state asset allocation between equity and debt, with equity swinging in a narrow band of 68 to 72 per cent. The aim is to purchase reasonable quality businesses, with the ability to deliver growth and with good ROE, management quality and business dynamics, at sensible valuations. The debt portion contains mainly sovereign and money-market allocations, with marginal corporate exposure. The fund’s three- and five-year returns are 6–7 percentage points ahead of the benchmark and nearly 3 percentage points better than the category returns. The fund has contained downside well in the bear markets of 2011 and 2008 relative to its peers. A SIP worth ₹5,000 in this fund started 5 years ago is worth ₹5 lakh now.

3. Principal Balanced Fund

Principal Balanced Fund has completed 17 years. The performance over the past year or so has been exceptionally good. The fund has also been a consistent performer over the past 5 years. Investors with moderately aggressive risk appetites can invest in this fund with a long horizon. With 3-year annualized returns of 13.18% and 5-year returns of 17.45%, these are 7–8 percentage points higher than the benchmark returns and 2–5 percentage points more than the peer returns. A SIP worth ₹5,000 in this fund started 5 years ago is worth ₹4.8 lakh now.

Honorable Mention

HDFC Prudence Fund

This Fund is amongst the oldest and best managed balanced funds. This fund is managed by celebrated manager Prashant Jain right since inception. It has close to 75% exposure to equity, 23% exposure to debt and close to 1% exposure to cash and cash equivalents. Its equity portion has exposure to a balanced mix of large cap and mid cap stocks. Large cap stocks are perceived to be more stable but it is the stocks of medium sized companies that bring in kicker returns. With 3-year annualized returns of 9.51% and 5-year returns of 16.83%, these are 4–6 percentage points higher than the benchmark returns and around 1 percentage points more than the peer returns. A SIP worth ₹5,000 in this fund started 5 years ago is worth ₹4.7 lakhs now.

Start your SIP in the best mutual funds at www.Upwardly.in

*These funds have an exit load of 1% if withdrawn before 1 year. We recommend investing in equity schemes for long-term.

Originally published at www.upwardly.in on February 23, 2018.