Is it Time to Redeem Your Balanced Fund - The Honest Truth By Ajit Dayal

Is it Time to Redeem Your Balanced Fund

5 MARCH 2018

The fictitious myths, outright lies, or intentional misinformation about balanced funds continues.

A friend told me in awe that a respected Mutual Fund House collects Rs. 40 crore every day for its balanced funds!

I tweak that around to think that maybe investors are being mis-sold Rs. 40 crore worth of product every day.

SEBI has rightfully asked the fund houses to correctly label their products.

SEBI should immediately clamp down on the incorrect classification of many balanced funds because many of them continue to behave in a very unbalanced manner.

These unbalanced funds behave like high-octane equity funds and tend to rise faster than the BSE-30 Index and decline more than the BSE-30 Index.

They are not, in their current form, "safe" and cannot be marketed as a substitute for Fixed Deposits, as they are supposedly being positioned by eager wealth advisors.

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An earlier Honest Truth Balanced Funds are Unbalanced! on November 18, 2017 highlighted this incorrect behavior of the balanced funds and gave comparisons of some funds to the Quantum Multi Asset Fund - a true balanced fund that underperforms the BSE-30 Index on the way up but protects your downside when the stock market declines.

The data on the track record of balanced funds suggests that investors continue to be fooled, misled, or lied to.

The period January 1, 2018 till February 28, 2018 has been a roller-coaster ride for the Indian (and global stock markets). Investors in balanced funds must be sleeping well in the night expecting that the NAV of their balanced funds are protected from the bloodshed on Dalal Street.

Well, the truth is that the balanced funds that were covered in the earlier November 18, 2018 continue to fail to protect their investors' capital value in a stock market downturn.

As can be seen in Table 1 below, none of the four popular balanced funds has given any protection. In fact, they have done worse than the BSE-30 Index and worse than the Quantum Multi Asset Fund - which is one of the few truly balanced funds available today.

Table 1: Still tipsy from drinking at the bar?
Index / Balanced Fund Return (%) Period Jan 1, 2018 to Feb 28, 2018
BSE 30 Index +0.46%
Quantum Multi Asset Fund +0.24%
HDFC Prudence Fund -3.44%
ICICI Prudential Balanced Fund -1.54%
HDFC Balanced Fund -1.64%
Aditya Birla SL Balanced Advan Fund -1.81%
All returns are in absolute terms.
Source: Bloomberg, ACE MF, PersonalFN Research

Let me be clear: the balanced funds have ditched you and let you down.

It is either a case of their mis-selling - or your mis-understanding.

There is nearly Rs. 50,000 crore in these popular balanced funds.

(That is more than 3x the money that Nirav Modi has allegedly borrowed using LoU's from Punjab National Bank!) That is a lot of money to invest on an incorrect premise!

The best thing to do is to give these popular (un)balanced funds a miss and move your money out to either:

  1. A true balanced fund,
  2. A combination of (a) a pure equity fund where you know your money will be invested in the "risky" asset class of equities + (b) a pure liquid/debt fund which gives you some certainty of income with little risk to the NAV due to any surge in interest rates.

Sadly, many in the mutual fund industry continue to play havoc with your blind trust and with your pool of savings.

Like politicians who prey on a uniformed electorate, they thrive on your lack of understanding of the products they offer you and take advantage of the trust you have placed in them.


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Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)

Quantum Long Term Equity Fund and Quantum Equity Fund of Funds Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% in total in both; Maybe 20% in QLTEF and 60% in QEFOF 20% Keep aside money to meet your expenses for 6 months to 2 years
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"
Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is Founder of Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site.

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2 Responses to "Is it Time to Redeem Your Balanced Fund"

V Balasubramaniam

Mar 8, 2018

You seem to be providing "partial Truth". Any investment with fixed monthly return is to be viewed in LONG term ie atleast 10 years. Companre HDFC Balanced Fund, HDFC Prudence Fund, ICICI Balanced Advantage fund. They have given double digit return per annum for over a decade TAX FREE.

If you think this is much less than the FIXED DEposit rates which has been consistently falling for the past 20 years. You need to relearn your mathematics.

Like (6)


Mar 7, 2018

The competitors Balanced Funds listed and trashed in this article are labeled as aggressive equity oriented balanced funds with a mandate to keep around 35% of their assets in Debt. It is apparent from a quick perusal of the equity portion of their portfolio that it is tilted towards higher beta midcap stocks. In this context these funds have stuck to their mandate.
With a 65% high beta stock portfolio , it is entirely reasonable to expect a period of under performance to the BSE 30 index. The long term risk adjusted track record of funds like HDFC Balanced have been good . Comparing these to FDs and trashing these funds is laughable.

I respect Equity Master but selectively showing a tiny sample size of performance just 1.5 months to promoted your wares is in bad taste .

Like (12)
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