Balanced funds, better for asset allocation in volatile markets: crisil

05 Aug 2013

1

Indian fixed income markets were impacted in the recent weeks by a series of liquidity tightening measures by the Reserve Bank of India to strengthen the rupee.

With debt markets turning volatile after a steady run over the past year, investors are in a dilemma over their allocation in key asset classes, - equity and debt.

Balanced mutual funds offer a simple solution to this dilemma as they invest 65-80 per cent into equity and the balance in debt instruments. Equity has the potential to deliver superior long-term returns while debt provides stability to the portfolio. This diversification protects the portfolio from downside risks if either equity or debt enters a bearish phase.

Crisil's study reveals that balanced funds (measured by the Crisil -  AMFI Balanced Fund Performance Index) have outperformed the CNX Nifty (equity markets) across time frames of 3, 5, 7 and 10 years (table 1).

Balanced funds also witnessed lower capital erosion when equity markets declined and enabled investors to capitalise from gains in equity markets by delivering returns higher or similar to those of the CNX Nifty (equity markets) (table 2). Balanced funds were also less volatile (a measure of risk) with 17 per cent annualised volatility over a 5-year period compared to almost 25 per cent for the CNX Nifty.

It is important for investors to look at an asset allocation approach; however the way it is executed is also equally important. Investors often tend to re-allocate assets based on market sentiments which may not be in their best interest.

In comparison, balanced funds follow a well-defined asset allocation approach that offers a higher degree of protection on the downside but preserves much of the upside thereby serving investors well.

Investors have the option to choose from the top ranked balanced funds from the Crisil Mutual Fund Ranking.

The latest CRISIL Mutual Fund Ranking released for June 2013 reveals:

  • UTI Mutual Fund led the tally of top-ranked funds for the quarter with nine funds under Crisil Mutual Fund Rank 1
  • Birla Sun Life Mutual Fund followed with six top-ranked funds and
  • IDFC Mutual Fund with five top ranked funds.

The latest CRISIL Mutual Fund Ranking covers over 90 per cent of the industry's average assets under management (AuM) of the open ended schemes as of June 2013.

A unique feature of the CRISIL Mutual Fund Ranking is that unlike many other ranking models that are purely based on returns or net asset value (NAV), it uses a combination of NAV and portfolio-based attributes for evaluation.

CRISIL's fund ranking framework provides a comprehensive analysis of mutual funds, taking into consideration all factors, such as risk, returns, asset concentration, liquidity, asset quality and asset size.

The rankings also include categories that focus specifically on long-term consistency in performance.

The ranks are assigned on a scale of 1 to 5, with CRISIL Fund Rank 1 indicating 'very good performance'. In any peer group, the top 10 percentile of funds are ranked CRISIL Fund Rank 1 and the next 20 percentile are ranked CRISIL Fund Rank 2.

Table 1 - Performance of Balanced Funds

Index
3 Years %
5 Years %
7 Years %
10 Years %
CRISIL-AMFI Balanced Fund Performance Index
4.41
11.94
11.61
18.6
CNX Nifty Index
3.22
7.66
9.33
17.88
Performance as on June 28, 2013 / Returns are annualised

Table 2 - Performance in bull and bear market phases

Period
From Date
To Date
CRISIL – AMFI Balance Fund Performance Index
CNX NIFTY Index
Sub-prime crisis
01-Jan-08
31-Mar-09
-35.93%
-43.42%
Sharp bounce back post S4ub-prime crisis
01-Apr-09
31-Dec-10
51.67%
48.77%
European Crisis
01-Jan-11
28-Jun-13
0.95%
-1.94%
Returns are annualised

Table 3 – Performance of categories
Category
Index Name
% Absolute Returns (Quarter ended June 2013)
Large Cap Oriented Equity Funds CRISIL – AMFI Large Cap Fund Performance Index
1.61
Diversified Equity Funds CRISIL – AMFI Diversified Equity Fund Performance Index
-0.34
Small and Mid-cap Equity Funds CRISIL – AMFI Small & Midcap Fund Performance Index
-0.70
Equity Linked Savings Scheme (ELSS) CRISIL – AMFI ELSS Fund Performance IndexCRISIL – AMFI ELSS Fund Performance Index
1.10
Balanced funds CRISIL – AMFI Balance Fund Performance Index
0.61
Long Term Gilt funds CRISIL – AMFI Gilt Fund Performance Index
4.75
Long Term Income funds CRISIL – AMFI Income Fund Performance Index
3.83
Liquid funds CRISIL – AMFI Liquid Fund Performance Index
2.17
Monthly Income Plan CRISIL – AMFI MIP Fund Performance Index
2.50
Short Term Income funds CRISIL – AMFI Short Term Debt Fund Performance Index
2.72
Ultra Short-term Debt funds CRISIL – AMFI Ultra Short Fund Performance Index
2.32

Table 4 - CRISIL Fund Rank 1 Schemes

Large Cap-oriented Equity Funds Long Term Income funds
BNP Paribas Equity Fund IDFC Dynamic Bond Fund
UTI Equity Fund SBI Dynamic Bond Fund
UTI India Lifestyle Fund SBI Magnum Income Fund
UTI Opportunities Fund
Short Term Income Funds
Diversified Equity funds Birla Sun Life Short Term Fund
Birla Sun Life India GenNext Fund JPMorgan India Short Term Income Fund
ICICI Prudential Services Industries Fund Morgan Stanley Short Term Bond Fund
Reliance Equity Opportunities Fund Sundaram Flexible Fund - Short Term Plan
Tata Ethical Fund
UTI MNC Fund Ultra Short-Term Debt funds
ICICI Prudential Flexible Income Plan
Thematic - Infrastructure funds JPMorgan India Treasury Fund
DSP BlackRock India T.I.G.E.R. Fund Reliance Money Manager Fund
UTI Treasury Advantage Fund
Small and Mid-Cap Equity funds
Birla Sun Life MNC Fund Liquid funds
JPMorgan India Smaller Companies Fund Baroda Pioneer Liquid Fund
SBI Emerging Businesses Fund IDFC Cash Fund
Indiabulls Liquid Fund
Equity Linked Savings Scheme (ELSS) UTI Liquid Cash Plan
Axis Long Term Equity Fund
BNP Paribas Tax Advantage Plan Consistent Performers - Equity funds
Birla Sun Life Frontline Equity Fund
Index funds Birla Sun Life India GenNext Fund
Goldman Sachs Nifty Exchange Traded Scheme (GS Nifty BeES) IDFC Premier Equity Fund
L&T Equity Fund
Balanced funds Reliance Equity Opportunities Fund
ICICI Prudential Balanced Fund SBI Emerging Businesses Fund
UTI Equity Fund
Monthly Income Plan – Aggressive UTI Opportunities Fund
Reliance Monthly Income Plan
Consistent Performers - Balanced Funds
Monthly Income Plan – Conservative ICICI Prudential Balanced Fund
Birla Sun Life MIP II - Savings 5 Plan
Consistent Performers - Debt Funds
Long Term Gilt funds UTI Bond Fund
IDFC G Sec Fund - Investment Plan
IDFC G Sec Fund - PF Plan

 

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