Three funds for doubledigit returns

Post on: 5 Июль, 2015 No Comment

Three funds for doubledigit returns

They tread a fine line between debt and equity for returns without risk to capital

Advisors usually tell investors that if they want to enjoy double-digit returns, they should take the wild swings of the stock market in their stride.

But given that equity and balanced funds have suffered 40-50 per cent losses in bear markets such as 2008, this is easier said than done. So, are there funds which can get you a double-digit return over three or five years, without wiping out half of your capital if the stock market tanks? Here are three hybrid funds selected for their good track record, which can do just this.

HDFC Multiple Yield Fund

This funds one-year return of 16 per cent, three-year return of 11 per cent and five-year return of 10 per cent may not appear high in relation to most balanced funds. But they are pretty impressive when you consider the funds asset allocation and risk profile. HDFC Multiple Yield puts roughly 85 per cent of its portfolio in debt securities with a one-year maturity and 15-25 per cent in high dividend yielding stocks.

This combination of a low-risk debt strategy with a low-risk equity strategy has served up a double-digit return over the long term, without any of the nasty surprises that equity or balanced funds can throw up.

In the bear market of 2008, when the average balanced fund lost over 40 per cent in value, HDFC Multiple Yield suffered just a 3 per cent fall in its NAV.

In 2010 and 2011, which were not-so-great years for debt funds, HDFC Multiple Yield still managed returns of 11 and 6 per cent, respectively. The fund has had only one down year since its launch in late 2004 a good bet for conservative investors looking for a double-digit return.

Franklin India Pension Plan

A fund meant to build your retirement kitty, Franklin India Pension Plan is slightly more aggressive than HDFC Multiple Yield, with a 40 per cent equity allocation and a 60 per cent debt allocation. While the equity picks are mostly large-cap, the debt portfolio is mainly invested in gilts or AAA-rated bonds.

Though low on credit risk, the debt portion features a fairly long duration (8.5 years in end November 2014), which increases interest rate risk but may enable it to make the most of a falling rate scenario.

The fund now sports a one-year return of 35 per cent, three-year return of 18 per cent and a five-year return of 12 per cent, ahead of the balanced fund category, despite a much lower risk profile. It has suffered two years of losses in the last 10 years, with a 24 per cent fall in its NAV in the bear market of 2008. Investments in the fund carry a three-year lock-in period and are eligible for section 80C tax benefits.

ICICI Pru Balanced Advantage

A fund which combines stocks, arbitrage profits and bonds into one portfolio, ICICI Pru Balanced Advantage Fund resembles an ordinary balanced fund on overall asset allocation.

Three funds for doubledigit returns

But its differentiator is that it carries much lower risk than a plain vanilla balanced fund.

The fund normally invests up to 35 per cent of its portfolio in debt investments and 65 per cent in equities. But risks in the equity portfolio are contained through two strategies.

The equity portion is made up both of direct stock holdings and arbitrage bets (which yield debt-like returns). Apart from this, the fund adjusts its direct equity exposure based on whether overall market valuations are expensive or cheap. If the markets price-to-book value ratio is low (based on historical bands), the fund raises its direct stock holdings and relies less on arbitrage. If market valuations are high, direct equity is cut to 30 per cent, with the fund betting more on arbitrage opportunities.

The fund has managed one-year returns of 30 per cent, three-year returns of 24 per cent and five-year returns of 15 per cent. Returns took a wallop during the 2008 market slide, with the NAV declining 37 per cent.

But the fine-tuning of the asset allocation strategy after that has helped the fund deliver more predictable gains thereafter. The fund contained its NAV losses to less than 9 per cent in 2011, when balanced funds as a category shed 18 per cent.

This fund is more risky than either HDFC Multiple Yield or Franklin India Pension Plan, but can be a good option for investors who are looking for a lower-risk version of the balanced fund.

(This article was published on January 17, 2015)


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