Balanced funds assets zoomed 72% in a year, investors seek safety

MUMBAI: Heightened volatility in the equity markets is driving retail investors to balanced funds, which invest 65% of their corpus in equities and the balance in debt. The assets under management (AUM) of balanced funds has surged to Rs 42,200 crore in December 2015, from Rs 24,490 crore in December 2014, a rise of 72% (see table).
“The mutual fund industry has added more than 25 lakh first-time investors in 2015. Balanced funds being low volatility products, many investors make their first investments through these funds,” says Raghav Iyengar, executive vice president, ICICI Prudential Mutual Fund.

He expects balanced funds to continue attracting higher flows in the first half of 2016 from investors. Wealth managers are recommending first-time investors to invest in this category as valuations were high and earnings are taking time to recover.

The Nifty is trading at a PE of 20.47, while the Nifty Midcap 100 trades at a PE of 26.89. Balanced funds, which have 65-75% of their portfolio in equity with the balance in debt, have a lower volatility than plain vanilla equity mutual funds.

“A set of investors fixed income investors are also moving up to balanced funds for dual benefits of higher returns and tax benefits,” says Himanshu Vyapak, deputy chief executive officer, Reliance Mutual Fund. Taxation benefits are another attraction. Investors in the high tax bracket gain as these funds are treated as equity funds from a taxation perspective.