Sundaram Balanced Advantage Fund: Striking To Maintain The Right Balance
Feb 15, 2020

Author: Aditi Murkute

Sundaram Balanced Advantage Fund: Striking To Maintain The Right Balance
(Image source: Background photo created by creativeart -

Sundaram Mutual Fund has launched an open-ended hybrid scheme, Sundaram Balanced Advantage Fund.

For the investment climate of both the prime asset classes have become uncertain and have gone through extreme turbulence. Plus the sluggish economic growth continues and rising inflation has been worrisome for quiet sometime now.

Hence in order to make the most of both the assets, several fund houses, including Sundaram Mutual Fund,have launched a balanced advantage fund.  Balanced Advantage Fund is an open-ended scheme that is a sub-category of hybrid funds, which was originally a subset of balanced funds. But, since the re-categorisation of mutual funds, this was a newly formed category.

The balanced advantage/dynamic asset allocation fund mitigates the risk by dynamically managing the allocation between equity and debt as per the prevailing market valuation and sentiment in each asset class. If need be, it captures potential gains by using arbitrage opportunities.

The fund house aims to optimise on equity and debt investment to give the best of both worlds. It is of the view that balanced advantage fund provides:

  1. Capital Appreciation
  2. Dynamic management
  3. Mix of Equity, Debt, REITs, InVITs & Equity Derivatives and
  4. Accrual Income

And the dynamic allocation within the balanced advantage helps in...

  • Improved risk-rewards
  • Overcome emotions / sentiment
  • Dynamic allocation also means elimination of biases using model-based allocations and
  • Capture Equity taxation benefits

SBAF has the flexibility to vary its exposure between 0%-100% in equities and equity related instruments. Plus, it will have exposure in fixed Income, money market Instruments and Government Securities cash and cash Equivalents, and units issued by REITs and InvITs.

While constructing the equity portfolio the fund will be highly diversified across sectors with major allocation to large cap and mid caps based on the valuation differential between the representative cap-curve indices. And will be dynamically managed to invest 0% -100% in fixed income, money market Instruments and Government Securities expected to benefit from the compression in spreads in the short-term segment of the curve on account of surplus liquidity.

In terms of the risk-return matrix, this scheme is placed at moderate-risk, moderate-return investment proposition.

Graph: Risk-return Positioning of Balanced Advantage Fund

Graph: Risk-return Positioning of Balanced Advantage Fund
(Source: Sundaram Balanced Advantage Fund Presentation)

[Read:  Why Comparing Returns to Risk Is More Meaningful!]

Table 1: Details of Sundaram Balanced Advantage Fund

Type An open-ended dynamic asset allocation fund. Category Hybrid: Dynamic Asset Allocation
Investment Objective To provide accrual income and capital appreciation by investing in a mix of equity, debt, REITs/InvITs and equity derivatives that are managed dynamically.
There is no guarantee or assurance that the investment objective of the scheme will be achieved. Investors are neither being offered any guaranteed / indicated returns nor any guarantee on repayment of capital by the Schemes. There is also no guarantee of capital or return either by the mutual Fund or by the sponsor or by the asset management company
Min. Investment Rs 1000 and in multiples of Re. 1/- thereafter Face Value Rs 10 per unit
  • Regular
  • Direct
  • Growth (default option)
  • Dividend (Reinvestment, Payout and Sweep options)
Entry Load Nil Exit Load
  • If units purchased or switched in from another scheme of the Fund are redeemed or switched out within 1 Year from the date of allotment:
    • for up to 10% of such units - exit load: Nil.
    • for more than 10% of such units – exit load: 1% of applicable Net asset Value (NaV)
  • If units purchased or switched in from another scheme of the Fund are redeemed or switched out after 1 Year from the date of allotment - NIL.
Fund Manager Mr S Bharath, Mr S Krishnakumar and Mr Dwijendra Srivastava. (Fixed Income) Benchmark Index CRISIL Hybrid 50%+50% Moderate Index
Issue Opens 14/02/2020 Issue Closes: 28/02/2020
(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the asset allocation pattern will be as follow:

Table 2: SBAF's Asset Allocation

Instruments Indicative allocation (% of net assets) Risk Profile
Minimum Maximum
Equity & Equity related instruments 0% 100% High
Fixed Income, money market Instruments and Government Securities cash and cash Equivalents 0% 100% Low to Medium
Units issued by REITs / InvITs 0% 10% Medium to High
  • The Scheme may use derivatives for trading, investment, hedging and portfolio balancing. Exposure to derivatives will be limited to 50% of the net asset value of the Scheme at the time of transaction.
  • The scheme may invest in securitized debt upto 35% of the fixed income allocation (including accrued interest)
  • The scheme shall engage in securities lending subject a maximum of 20% and 5% for a single counter party.
  • The scheme may invest in repo in corporate bond upto 10% of the net assets of the fixed income allocation, in accordance with SEBI regulations.
  • The Scheme will not invest in foreign securities and credit default swaps
(Source: Scheme Information Document)

What will the Investment Strategy be?

The scheme aims to dynamically manage the asset allocation between net long equity, Fixed Income and REITs/InvITs. accordingly, the fund manager will decide asset allocation between equity, debt and REITs/InvITs depending on prevailing market and economic conditions.

Among the metrics considered for deciding the debt-equity mix at any point of time will be the interest rate cycle, equity valuations (P/E, P/BV, Dividend Yield, Earnings yield, market cap to GDP ratio etc), medium to long term economic outlook etc.

The objective of the equity strategy will be to build a portfolio of companies diversified across major industries, economic sectors and market capitalization that offer an acceptable risk reward balance. Investment in debt securities will be guided by credit quality, liquidity, interest rates and their outlook. This proportion will depend on the fund manager's views.

The investment strategy on the derivative side includes identifying and investing into arbitrage opportunities between spot/cash and futures prices of individual stocks.

The Scheme will use various arbitrage opportunities. The investments in debt and money market instruments would be aimed at maintaining a balance between safety, liquidity and return on investments. The debt and money market portion of the portfolio shall be actively managed with an endeavor to generate superior risk adjusted returns.

The Fund manager shall formulate a view of the interest rate movement based on various parameters of the Indian economy, as well as developments in global markets.

Investment views/decisions inter alia may be taken on the basis of the following parameters:

  • Returns offered relative to alternative investment opportunities.
  • Liquidity of the security
  • Prevailing interest rate scenario
  • Quality of the security/instrument (including the financial health of the issuer)
  • maturity profile of the instrument
  • credit Rating for the instrument
  • any other factors considered relevant in the opinion of the Fund management team.

The Investment Process may be classified into:

  1. Research & Analysis
  2. Approval of Securities
  3. Portfolio Construction & Selection of Investment
  4. Monitoring

Diagram 1: Investment process

Diagram 1: Investment process
(Source: Scheme Information Document)

Who will manage Sundaram Balanced Advantage Fund?

The equity portion of the Sundaram Balanced Advantage Fund will be co-managed by Mr S Bharath and Mr Krishnakumar S. Mr Dwijendra Srivastava will manage the Fixed income portion of the scheme.

Mr S. Bharath a commerce graduate (B. Com), completed his MBA, Financial Risk Management (FRM) and ICWA. He has 6 years of experience in Fund management.

He has been associated with Sundaram Asset Management Company Ltd from April 2018. Prior to that, he has worked as a Fund Manager and Research Analyst.

Currently at the fund house, some of the schemes which Mr S. Bharath manages include Sundaram Smart Nifty 100 Equal Weight Fund, Sundaram Value Fund Series II - X and Sundaram Long Term Tax Advantage Fund Series I - II as the lead fund manager.

Some of the other schemes that Mr S Bharath co-manages are Sundaram Infrastructure Advantage Fund and Sundaram Equity Savings Fund (Equity Portion).

Mr Krishnakumar S holds an honorary degree in Engineering (BE) and has done his post-graduation diploma in Business Administration. He has more than 13 years of experience in Equity Research and Fund Management.

He has been associated with Sundaram Asset Management Company Ltd from December 2003 as a Senior Research Analyst. Over the years he has grown to become an integral part of the AMC.

Currently Mr Krishnakumar is the Chief Investment Officer of Equities and manages, Sundaram Small Cap Fund, Sundaram Select Small cap Series and Sundaram Large and Midcap Fund

Some of the other schemes that Mr Krishnakumar co-manages are Sundaram Select micro cap Series VIII-XII and XIV-XVII, Sundaram Infrastructure Advantage Fund, Sundaram Global Advantage Fund, Sundaram Debt Oriented hybrid Fund (Equity Portion), Sundaram World Brand Fund II-III Sundaram Rural and consumption Fund, Sundaram Diversified Equity, Sundaram Financial Services Opportunities Fund, Sundaram Emerging Small cap Series - I-VII, Sundaram Long Term micro cap Tax Advantage Fund Series III - VI, Sundaram Equity Savings Fund (Equity Portion), Sundaram Services Fund, Sundaram Long Term Tax Advantage Fund Series III-IV, and Sundaram Multi cap Series I-II

Mr Dwijendra Srivastava joined Sundaram Asset Management Company Ltd as the Chief Investment Officer for Debt Investments. He has done his B. Tech with a specialization in Textile Technology, PGDM in Finance and CFA. He has a work experience of over 12 years in Fixed Income and Fund Management.

Before joining the fund house, he was the Head of Fixed Income at Deutsche Asset Management (India) Ltd, Vice President and Fund Manager at JM Financial Asset Management Ltd and has been associated with the Fund Management Team of Tata Asset Management as the Fund Manager.

Currently at the fund house, some of the schemes which Mr Dwijendra co-manages include; Sundaram Money Fund, Sundaram Low Duration Fund, Sundaram Corporate Bond Fund, Sundaram Medium Term Bond Fund, Sundaram Short Term Debt Fund, Sundaram Capital Protection Oriented Funds, Sundaram Debt Oriented Hybrid Fund, Sundaram Fixed Term Plans, Sundaram Multi cap Series I - II (Debt Portion), Sundaram Short Term Credit Risk Fund, Sundaram Banking & PSU Debt Fund, Sundaram Equity Savings Fund (Debt Portion) and Sundaram Equity Fund (Debt Portion).

Table 3: Performance table of the schemes managed

Scheme Name Name of the fund manager Managing Since Benchmark Name Returns (%) Benchmark Returns (%)
Sundaram Small Cap Fund S. Krishnakumar Feb-2006 NIFTY 50 - TRI 12.51 11.67
Sundaram Debt Oriented Hybrid Fund Dwijendra Srivastava Aug-2010 CRISIL Hybrid 85+15 - Conservative Index 7.08 10.44
Sundaram Large and Mid Cap Fund S. Krishnakumar Jan-2012 Nifty LargeMidcap 250 Index - TRI 15.04 14.95
Sundaram Mid Cap Fund S. Krishnakumar Nov-2012 S&P BSE Mid-Cap - TRI 16.22 13.42
Sundaram Infra Advantage Fund S. Krishnakumar, S. Bharath Feb-2013 S&P BSE 100 - TRI 11.62 13.06
Sundaram Diversified Equity S. Krishnakumar, Dwijendra Srivastava Mar-2015 S&P BSE 200 - TRI 7.60 9.17
Sundaram Smart NIFTY 100 Eq Weight Fund S. Bharath Apr-2018 NIFTY 100 Equal Weight Index - TRI -2.84 -2.42
Sundaram Equity Savings Fund S. Krishnakumar, S. Bharath, Dwijendra Srivastava Dec-2018 NIFTY 50 - TRI 7.41 11.48
Sundaram Fin Serv Opp Fund S. Krishnakumar Dec-2017 Nifty Financial Services - TRI 9.32 17.09
Sundaram Rural and Consumption Fund S. Krishnakumar Jan-2016 NIFTY 500 - TRI 15.0 13.21
Data as on February 14, 2020
(Source: ACE MF-PersonalFN Research)

As can be seen, only a few schemes managed by the fund managers have been able to trail ahead of their respective benchmark index. Hence the management style does not give much confidence to investors.

The outlook for Sundaram Balanced Advantage Fund.

Sundaram Balanced Advantage Fund aims to achieve the scheme's objective of capitalizing gains with reduced risk by dynamically shifting in equity allocations during phases of extremely High/Low multiples. The fund managers would make use of hedged and unhedged equity and arbitrage to avoid any downside risks in the volatile markets.

The fund house believes that using three-pronged investment strategy of dynamic asset allocation involving straddling across Equity and Debt using a rule-based approach will help in generating superior risk-adjusted returns over a longer investment horizon.

Diagram 2: Investment Strategy to be used

Diagram 2: Investment Strategy to be used
(Source: Sundaram Balanced Advantage Fund Presentation)

Hence the performance of the scheme weighs on portfolio and risk management strategies employed by the fund managers.

With dynamic allocation across asset class, SBAF is expected to be moderately volatile, while its returns too would be moderate. The effectiveness of the model the fund house plans to follow to dynamically allocate assets will be tested over complete market cycle.

Considering the maximum skewness of the assets towards equity allocation, the fund performance hinges on the equity stocks held in the portfolio. So, it remains to be seen how the fund managers plays the investment strategy in the endeavour to accomplish the stated investment objective of SBAF.

[Read:  Skip NFOs, Instead Consider Building A Strategic Mutual Fund Portfolio]

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