Equity/Bond Markets Affect Balanced Funds

The flagging equity markets and an equally waning bond markets in August saw returns given by balanced funds declining. Balanced Fund as a class posted an average return of 24% under performing the Sensex that posted 36.36% return over one year period (as on 19 September 2007). Only seven schemes out of 24 outperformed the Sensex. Among which Principal Child Benefit Fund -Career Builder topped the category with 54.83% return. Top four holdings of the Principal Child Benefit Fund -Career Builder are Madras Aluminum (4.76%), Easun Reyrolle (4.21), Bosch Chassis Systems India (3.85%), Ruby Mills (3.70%).

Balanced funds are generally meant for a class of investors who are risk averse. Such investors look to garner big returns from equities, while relying on the safety net provided by debt. While there is no doubt that balanced funds have given decent returns over a period of time, they have failed to maintain their good performance. This category of funds uses a balance of equity and debt investments to act as a hedge in the event of a downturn in either of the markets. Quite surprisingly then, these funds have fallen more than equity diversified funds last month.

As debt forms a major chunk of some of the balanced funds, their returns have been hurt. Pure equity funds hardly managed to outperform BSE Sensex.

Since the stock markets as well as debt markets have been quite choppy this season, the returns of these funds have eroded but the long-term performance is always above average. Once the market stabilises, these funds are expected to come back in action.

Also as equity markets will post positive returns, the balance funds as category will also follow suit. The hybrid funds' mandate is to generate conservative returns. These funds achieve this by parking 65% to 80% in equities. In a month when equity markets have been down, hybrid funds have given negative returns.