One fund, many flavours

One fund, many flavours

There are two principles of investing that we strongly advocate—diversification and asset rebalancing. It is imperative for an investor to periodically rebalance his portfolio so that he realizes his financial goals.

Though asset allocation (and its subsequent rebalancing) is one of the most important aspects of investing, it is also one of the most frequently overlooked. Asset allocation is important because it has a huge impact on whether or not you will meet your financial goals.

Of course, an investor cannot predict which asset class will do well in any specific time frame and hence, should invest in funds where he does not have to worry about how much must be allocated to various asset classes and the maintenance of that ratio. Such funds are of primarily three types: hybrid funds, monthly income plans (MIPs) and automatic asset allocators.

Here, we present the best of such funds available in the market.


Rating: * * * * *

The fund delivered 16% in 2007 (category average: 12.5%) and 7.52% in 2008 (category average: -1.52%). Its three- and five-year returns also put it ahead of the category average.

When the fund manager sees opportunities in equity, he tanks up on it, but doesn’t cross the mandated 20%. Overall, his equity tilt is pretty moderate. He also actively churns the portfolio with the number of stocks, going from 21 (June 2008) to 2 (October 2008).

On the debt side, the fund plays it safe by largely maintaining a lower maturity profile and sticking to high quality paper, which helps contain the downside. Currently, it has 47% of its debt portfolio in commercial paper. Since July 2008, the fund has allocated an average 18.97% to debentures.

Barring 2007, the fund has been regular with its dividends. Since December 2007, it has declared a dividend every single month (0.88%).

Birla Sun Life ’95

Rating: * * * *

Over the past 13 years, this fund has evolved into a middle-of-the-road performer that rewards investors who hang in for the long term. Its five-year returns of 23.83% (as of 30 June) bear testimony to that.

The fund aims at keeping equity allocation in the 50-75% range. This aggressive equity allocation with a focus on growth stocks gives it a risky slant. But the fund manager plays it safe by ensuring that the portfolio is not concentrated on just a few stocks. However, he does tend to adopt a contrarian stance in its sector bets.

On the debt side, the fund has a preference for G-Secs and bonds. It mostly maintains a high quality portfolio but does stretch the maturity. The actively managed debt portfolio goes for duration calls; hence, the fund manager tends to stay away from commercial paper and certificates of deposit.

Canara Robeco Balance

Rating: * * *

The fund has been in existence since 1993 and has been subject to frequent fund manager changes. But its higher-than-average five-year returns of 24% (as of 30 June) make it worthwhile. In the three-year period of 2004-06, the fund was a top quartile performer. The fund maintains an equity allocation of around 67%. Though the equity allocation has gone down, the number of stocks has gone up. The manager opts for bottom-up stock picking and stays with companies about which he has high conviction.

On the debt side, historically, the fund tended to dabble in low quality paper and also gravitated towards the higher end of the maturity spectrum. But since the start of the year, the fund manager has toned down the maturity and has stuck to highly rated paper. Despite a long and complicated history, the latest fund manager has brought in stability and managed to impress with his performance.

DSP BlackRock Balanced

Rating: * * * *

This does what a balanced fund is supposed to do—play it safe. The fund sticks to its equity mandate of 65-75%. It upholds its large-cap bias and the fund manager maintains a well-diversified portfolio.

On the debt side, the fund tries to keep risk down to the minimum by sticking to high-quality and low-maturity paper. Unlike its peers, it has refrained from extensively investing in debentures and commercial paper. It prefers to invest in floating rate paper and government bonds and in this way, balance the credit as well as interest rate risk.

You won’t find this fund collapsing like a pack of cards but neither will it deliver trailblazing returns. In the bear hug running from January 2008 to March 2009, the fund shed 38% (category average: -43%). In the rally that followed, it delivered marginally less than the category, and therein lies its appeal.

Reliance MIP

Rating: * * * * *

The fund’s aggressive tilt is seen in both equity and debt.

This fund has maintained an average equity allocation of 15.8% since its inception. Within this allocation, the fund manager actively churns his portfolio among stocks of all market caps. But this is typical of the fund manager’s style—taking aggressive maturity calls to earn that extra return. On the debt side, besides G-Secs, he actively invests in non-convertible debentures and floating rate notes. He sticks to highly rated paper.

On a long-term basis, the fund has outperformed its peers every year barring 2007, when it underperformed the category average by 4%. In 2008, it delivered 9.57% (category average: -1.52%).

The fund may appear aggressive among its more conservative peers, but its ability to bounce back after being hit and reward its investors is impressive. And barring very few instances, the fund has managed to declare a dividend every single month.


High income and liquid schemes=booming MF assets

The huge amounts of inflow in income and liquid schemes have taken the mutual fund industry’s assets to record highs. According to data provided by the Association of Mutual Funds in India for July, MF assets touched Rs7.22 trillion for the first time. This is a growth of 23.84%, or Rs1.24 trillion, during the end of June. Equity funds saw net inflow to the tune of Rs4,232 crore in July. However, the story was not the same for gilt funds. In July, they saw a net outflow of assets which ran up to Rs1,061 crore. The other categories that lost money were exchange traded funds (ETFs), other than gold ETFs, and overseas fund of funds. Marginal net inflows of Rs40 crore were also recorded under gold ETFs.

Do you understand?

Market conditions have changed, and it’s natural that fund managers follow suit where their portfolios are concerned. Last year, we saw a collective flight into defensives such as healthcare and fast-moving consumer goods (FMCG). Now, since the market has picked up, they are being shunned. When we looked at the portfolios of February and July, we found that 53 open-ended diversified equity schemes changed at least 30% of their portfolio. What’s common between these is the small size, which gives them more leeway in churning. Among the biggest four portfolio churners, none had assets greater than Rs12 crore.

FMPs in dire straits

Things have not looked good for fixed maturity plans (FMPs) over the past year or so. This has been the case ever since the Securities and Exchange Board of India (Sebi) almost signed their death certificates in the wake of the October crisis. Things looked up a bit and seemed to revive in March, when just a single plan from Reliance MF, Reliance FHF XII-Series 4, made a collection of 2,000 crore. It indicated that there was demand for the instrument. But there were just two new FMPs launched in April, none in May and only one in June. The state of affairs on the ground is that while 230 FMPs had been launched till August in the last financial year, the number is just 3 for this one. Eight FMPs have filed new offer documents with Sebi. However, it remains to be seen whether these filed documents translate into new fund offers.

Make the right investment

The habit investors have of putting money in funds that have larger assets, rather than small ones, has not really paid off. Small funds have outperformed their bigger peers from August 2008 to July. Except for HDFC Equity and HDFC Top 200, which are the fifth and sixth largest, respectively, as per their assets in July, none of the popular funds have actually crossed the 20% returns mark. These two funds gave returns of 23.6% and 26.4% respectively. On the contrary, some smaller funds, as per their July assets, performed brilliantly, nearly touching the 40% returns mark. Shying away from all expected norms, almost all these funds surprised by giving returns of at least 30%.

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