Five best balanced funds

Value Research | March 29, 2006

Y esterday, in Should you invest in balanced funds?. we explained the reason why balanced funds could make for a good investment.

Today, we take a look at five balanced funds that stand out among their peers.

Comparing the players

On an average, the category of balanced funds has delivered the following returns.

1-year return: 51.38%

3-year return: 46.21%

5-year return: 28.34%

So, when you look at the returns of individual funds, compare it with the category average mentioned above.

The funds are also given a star rating. The funds with a 5-star rating are the best. Those with a 1-star rating are the worst.

However, ‘best’ does not indicate the highest return when compared with the rest. It means you will get a good return without putting your money at too much risk.

Basically, it is a quick and easy way to identify mutual funds that have delivered strong risk-adjusted returns when compared with their peers.

All the returns and the Net Asset Values are as of March 27, 2006.

The returns and NAV mentioned are for the growth scheme of the fund, not the dividend scheme. To understand the difference between growth and dividend schemes, read The best mutual fund scheme for you.

HDFC Prudence

The good and the bad

HDFC Prudence is a class act. It sprints like an equity fund but delivers the stability of a balanced fund.

Overall, investors can’t have a better option than this. Continuity of the fund manager, unmatched returns and optimum stability make it the right fund for the long-term.

The history

This fund has rarely been rated below four stars and has got top ratings since December 2002. Funds are rated on a five-star to one-star basis, depending on returns and risk.

Moreover, the fund manager is known for his ability to spot opportunities at the right time.

NAV: 94.974

1-year return: 62.70%

3-year return: 57.74%

5-year return: 40.03%

Star rating: 5 star

Kotak Balance

The good and the bad

Being an aggressive and volatile fund, it can add some punch to your overall investments. It has also delivered good returns.

However, it may not be the right fund for those who are risk averse and are not comfortable with volatility.

The history

The fund has delivered better than the average returns of other balanced funds in the last two calendar years.

Launched in 1999, the fund initially invested in large-cap stocks. But the new fund manager who took over in August 2003 changed the portfolio and opted for mid-cap and small-cap stocks.

The fund manager changed again in late 2004 and this time he sold some of the small-cap stocks.

The high volatility and frequent fund manager changes remain an area of concern.

NAV: 26.645

1-year return: 69.02%

3-year return: 52.88%

5-year return: 32.65%

Star rating: 4 star

Franklin Templeton India Balanced

The good and the bad

It may not be the boldest balanced fund but it gets the job done. The focus is on stability and not extraordinary returns.

1-year return: 47.13%

3-year return: 43.97%

5-year return: 28.31%

Star rating: 3 star

DSP Balanced

The good and the bad

With most of the equity investments in large-cap stocks, relatively lower risk and the ability to bounce back from tough situations make it one of the better balanced funds.

The fund staged a similar comeback in the past as well. For instance, it reacted to the underperformances in 2000 and 2001 by selling its tech stocks and did quite well. In the next two years, it was one of the best five funds in the category.

NAV: 33.54

Entry load: Nil

1-year return: 52.39%

3-year return: 48.95%

5-year return: 28.35%

Star rating: 3 star

UTI Balanced

The good and the bad

The fund offers the least volatile portfolio. But volatility alone is not a good reason to invest in a fund.

The fund seems to have lost its touch. In a booming market, the performance looks uninspiring. Three successive years of underperformance and a hint that the fund manager is to be changed suggests that all is not well.

The history

From launch since 1995 till 2002, the fund was doing extremely well.

After that, the fund has been underperforming for the third straight year in 2005.

In the past, the fund has proved that it can handle tough situations better than others. For instance in 2000, when the markets were bearish, this fund delivered a 26% return against the average returns of 13% of other balanced funds. When tech stocks fell in 2000-01, it managed well by shifting to debt (fixed return).

However, that is the past. Investors in this fund should monitor ot more closely. If you are a new investor, consider one of the above instead of this one.