Best Balanced Funds In 2017: Should You Invest?
Nov 27, 2017

Author: PersonalFN Content & Research Team

As the market scales to new highs, investors become wary. During such times, distributors, advisors, and at times even mutual fund houses aggressively push balanced mutual fund schemes.

And investors are encouraged to seek out the best balanced mutual funds.

Unfortunately, when it comes to pick the best mutual fund schemes, investors tend to give a high weightage to recent performance and star ratings. This is why schemes with the best returns over the past 1-year or 3-year periods tend to gain the maximum inflows from investors.

Net Inflows in Balanced Funds In the Past One Year

Data as on October 31, 2017
(Source: ACE MF, PersonalFN Research)

Over the past one year, the net inflows into balanced mutual fund schemes have more than doubled. From around Rs 3,000 crore a year ago, the net inflow nearly tripled to Rs 9,000 crore in August 2017, before moderating to about Rs 6,000 crore in October 2017. In March 2017, net inflows into balanced funds even outpaced equity diversified funds. Clearly, investor participation has grown multi-fold.

Several balanced schemes have burgeoned in size. As many as 6 schemes have crossed assets of over Rs 10,000 crore each.

PersonalFN takes a deeper look at the best balanced funds of the past year. Though these schemes have delivered spectacular returns, are they worth your investment?

Best Balanced Funds Based On 1-year Performance

Data as on November 24, 2017
*Returns are absolute
(Source: ACE MF, PersonalFN Research)

*Please note, this table only represents the best performing balanced mutual fund schemes based solely on past returns and is NOT a recommendation. This is for information purposes only.

As can be seen in the table, the CRISIL Balanced Fund - Aggressive Index generated a return of 19% over a 1-year period ending on November 24, 2017. Out of the 30 schemes on the list, 17 schemes delivered a return in excess of 20%.

Those who had invested in the best balanced funds of the past 1-year could be sitting on gains in excess of 30%.

Let’s take a look at the 3-year performance. Which were the best funds in this period?

Best Balanced Funds Based On 3-year Performance

Data as on November 24, 2017
*Returns are compounded annualised
(Source: ACE MF, PersonalFN Research)

*Please note, this table only represents the best performing balanced mutual fund schemes based solely on past returns and is NOT a recommendation. This is for information purposes only.

The compounded returns over the past 3 years have not disappointed either. In the 3-year period ending on November 24, 2017, the CRISIL Balanced Fund - Aggressive Index delivered a compounded return of 8%. Over the same period, nearly 20 balanced fund schemes successfully generated more than 10% returns.

The balanced fund schemes with the best performance leads the list with compounded returns ranging between 13%-15%.

Clearly, balanced funds made the best use of the recently market rally and rewarded investors handsomely.

How have balanced funds managed to score such massive returns?

This is because balanced funds most often are not be balanced in the true sense. Most schemes, currently classified as balanced funds, invest about 65%-70% of their assets in equity.

Some schemes have taken a quantum leap by investing in mid-cap stocks as well. With this aggressive equity allocation, balanced funds are able to score massive returns in a bull market. At times, some schemes even outperform many equity-diversified funds.

Unfortunately, investors consider only returns and pay little heed to the high-risk asset allocation.

Be wary of a change in asset allocation

This ‘unbalanced’ allocation had been troubling the regulator for several years. After several hints over the past couple of years to officially announce a formal product labelling, the mutual fund regulator finally released stringent guidelines for mutual fund categorisation last month.

Now, the nomenclature of schemes is set to change with the new regulation on categorisation of mutual fund schemes.

The mutual fund regulator——the Securities and Exchange Board of India (SEBI)——has now defined balanced schemes as those that invest 40%-60% of their assets in equity, excluding arbitrage positions. Mutual Fund schemes that invest between 65%-80% of their assets in equity are termed as Aggressive Hybrid Funds.

In the coming months, either fund houses may change the asset allocation of existing balanced funds to conform to SEBI’s definition or they will classify the schemes as Aggressive Hybrid Funds and change the scheme names accordingly. A change in asset allocation will also result in equity-oriented schemes losing out on the tax benefit.

The lower equity allocation though reduces the volatility, compromises on long-term returns. In addition to this, these funds qualify as non-equity schemes for taxation purposes. Hence, with short-term capital gains, on units held for less than three years, will attract tax appropriated to your income tax bracket. Hence, if you fall in the highest tax bracket, the tax rate will be higher than 30%. This is obviously much more than the 15% tax rate equity schemes enjoy.

Long-term capital gains will be taxed at 20% with indexation for non-equity schemes. For equity schemes, the holding period is just one year and the long-term capital gains are tax-free.

Though the rules of the regulator are well intended for balanced funds to invest an equal proportion to equity and debt, such schemes may no longer be suitable for aggressive high-risk investors, and/or those with an investment horizon of greater than five years.

Most balanced schemes, based on the existing classification, invest over 65% of their assets in equity so that investors are applicable for a tax benefit. To comply with the regulations, most schemes may change their existing classification from Balanced Funds to Aggressive Hybrid Funds.

A fund house is permitted to offer either an Aggressive Hybrid fund or Balanced Fund. Hence, those with multiple schemes in the category will need to merge existing schemes. This will further have an impact on performance.

Should you invest in balanced funds?

Going by SEBI’s classification of balanced funds, the lower equity allocation, along with the tax implications on short-term and long-term capital gains, these set of funds do not seem very attractive.

If the fund house resorts to a change in asset allocation for existing schemes, it will have a direct impact on the performance of the scheme in the future. The long-term returns of the scheme will be subdued. The tax implications may lower returns further.

Hence, the best balanced fund of the past few years, may no longer continue to be the best performing balanced fund 2-3 years down the line.

If the fund house reclassifies the schemes as Aggressive Hybrid Funds with no change to the investment objective, these will be suitable for moderate to high-risk investors. As with all equity-oriented schemes, you need to maintain an investment horizon of five years or more.

However, you need to pick a scheme that has performed consistently through the years. Given the burgeoning assets, you also need to check if there is a noticeable change in asset allocation and the quality of stocks in portfolio. You do not want to end up with a scheme with illiquid investments.

Why depend on balanced funds to strategically allocate your investments?

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About the Company including business activity 

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989. 

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name for providing information on mutual funds and personal financial planning, financial markets in general, etc and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services. 

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, it subsidiaries and its Directors. 

and condition on which its offer research report. For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;
  2. PersonalFN Insurance Services India Private Limited;
  3. Equitymaster Agora Research Private Limited;
  4. Common Sense Living Private Limited;
  5. Quantum Advisors Private Limited;
  6. Quantum Asset Management Company Private Limited;
  7. HelpYourNGO Private Limited;
  8. HelpYourNGO Foundation;
  9. Natural Streets for Performing Arts Foundation;
  10. Primary Real Estate Advisors Private Limited;
  11. Rahul Goel;
  12. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest

  1. Neither QIS, it’s Associates, Research Analyst or his/her relative have any financial interest in the subject Company , except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF.
  2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
  3. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront /annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices

Disclosure with regard to receipt of Compensation

  1. Neither QIS nor it's Associates have any compensation from the subject Company in the past twelve months.
  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company in the past twelve months.
  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company in the past twelve months.
  4. Neither QIS nor it’s Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months except from Axis Bank Limited under a service agreement.
  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure

  1. The Research Analyst has not served as an officer, director or employee of the subject Company.
  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, Nariman Point, Mumbai 400 021. Email: Website: Tel.: 022 61361200 Fax.: 022 61361222

SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

Add Comments

Jan 10, 2018

Good balancefunds
Nov 29, 2017

Suits me

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