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In search of the right balance

The first mutual fund scheme that we had in India was a balanced fund —US-64, Unit Trust’s flagship scheme.

Balanced funds — or those that invest roughly half of their corpus in shares and the other half in debt instruments — are arguably the most popular variety of mutual funds, not only in India but the world over. It’s best suited for investors who do not have the stomach for the risks of a pure equity scheme, yet want their investments to outgrow fixed-income securities.

Mutual fund analyst Dhirendra Kumar says you should invest in only those balanced funds that have a consistent track record of say five years. “Balanced funds have a tendency to give rude shocks — avoid funds that are inconsistent.”

“The hallmark of a balanced fund is diversification. Check how well the fund has diversified within and across asset classes,” says Kumar.

Balanced funds are not an alternative to MIPs that typically invest a maximum of 20 per of their corpus in shares. While an MIP is ideal for regular income, a balanced fund is essentially a long-term growth vehicle.

In the last five years, the leading balanced funds have posted an annualised return of 20-odd per cent, their gains rising sharply in the last one year. In the next four to five years, anything in excess of 15 per cent should be satisfactory.

In the last instalment of our three-part series on Crisil’s ranking of mutual fund schemes, we take a look at the leading balanced funds. Franklin India Balanced and HDFC Prudence top the September charts. HDFC Prudence has held the top slot for the last eight quarters. The rankings are based on returns, quality of assets and diversification.

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