BackProduct crack: JPMorgan India Balanced Advantage Fund
This is a balanced fund with a slight tweak
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JPMorgan Asset Management India Co. Ltd has launched a new fund, called JPMorgan India Balanced Advantage Fund. Let’s take a look at this balanced fund.
What is it?
This is a balanced fund with a slight tweak. Typically, balanced funds invest at least 65% in equities and the rest in debt. As a result, many of them behave like equity funds as their equity exposure, in some cases, goes as high as 80%.
In the past few years, the capital markets regulator, Securities and Exchange Board of India (Sebi), has become strict about giving approvals to new fund launches. This has discouraged fund houses from launching balanced funds with the typical format. Sebi wants that new balanced funds should ideally have around half the exposure to equity and half to debt. JPMorgan India Balanced Advantage is a result of this. The scheme aims to invest 30-60% in equities, another 30-60% in fixed income and 5-10% in arbitrage opportunities. While in other balanced funds, the minimum equity exposure is 65%, in this scheme, the maximum pure equity exposure wouldn’t exceed 60%.
What works...
On the face of it, this scheme looks to be at a disadvantage to other existing balanced funds on account of low equity exposure. But in fact, it is more true to label than other balanced funds as its fixed income exposure would be higher than most other balanced funds. Yet it is not half-and-half as the category name “balanced" suggests. Under normal circumstances, the scheme’s pure equity exposure would be 53-55%; the rest would be in arbitrage and fixed income.
The scheme would manage its debt component actively. At the moment, its fund managers tell us that they would be largely invested in longer tenor government securities. Once the interest rate trend looks like it won’t fall further, the scheme will adopt an accrual strategy; investing in shorter tenored securities that earn a steady income. The fund house comes with a good track record in equity and debt funds.
...what doesn’t
Comparing the performance of the scheme with that of other balanced funds that are already in existence may not help our cause because JPMorgan India Balanced Advantage could underperform them in rising equity markets since its maximum pure equity exposure is limited to 60%. The rest of the returns will have to come through arbitrage opportunities, which gives modest returns. Also, like any other new scheme, this one, too, lacks a track record.
What should you do?
The scheme will aim to keep its overall equity exposure (pure equity + arbitrage) at 65% at all times to be able to give the equity tax advantage. Generally, we suggest investing in balanced funds if you are just venturing into equity investing or you want to invest in a conservative equity fund. This scheme is good for first-time equity investors, but do keep in mind the lack of track record. If you simply wish to invest in a conservative equity fund, there are enough choices among existing balanced funds.
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