It’s hard fact that less than 10% Indians invest in equity. The sudden rise and fall in the market make most of the people uncomfortable and therefore majority of the people treat equity investment as speculation and stay away from it. But this is not a good sign. You can’t ignore equity investment if your goals are long term. The high volatility in our market is likely to continue but we need to find out the ways to invest in equity. The best answer to this volatility and to earn high return in the longer run is investing in balanced funds of mutual fund. They provide an ideal mix of growth (equity) and safety (debt instruments). Your success as an investor depends upon your ability to choose the right investment options. This depends on your time horizon, ability to take risk and most importantly your financial goals. It is proven fact that in the developing country like India, equity will give good inflation adjusted return if you invest with proper study and stick to your investment. As balanced fund largely invest in equity, investors get the advantage of participating in economic growth of the country.
It is not only important to invest in equity for long term but it is equally important to rebalance the portfolio periodically. Rebalancing is the process of restoring your portfolio back to its original asset allocation. The rebalancing happens automatically in balanced funds and the same gives you added advantage when the markets are too volatile. The process is continuous which a normal investor can’t do because of lack of knowledge and expertise. The returns in equity are generated when the markets are low when you accumulate more units in your folio in monthly SIP. The balanced fund exactly does the same thing and therefore gives better result in the longer run compared to traditional instruments. Investing in balanced funds of mutual fund is one of the best solutions for investing in equity for the long term. Further if you invest in balanced fund systematically via monthly SIP than is likely to give you better result.
While assessing the category I have found the ICICI Prudential Balanced Advantage Fund as more investor friendly due to its flexible equity allocation. The fund was launched in December 2006 and has a long track record. The current AUM being close to Rs. 7000 crores also tells us that smart money has already been there. The fund is different from the other balanced funds due to its flexible equity allocation. It is having an equity allocation range from 30 to 80% depending on market conditions. The remaining part is invested in debt or arbitrage to generate safer returns. This allocation based on an algorithm in equity can help investors to safe guard their investment when markets are too high or too low. This is one of the conservative funds in the category. The fund follows the price to book value model while investing in the equity. The fund manager has to maintain equity allocation based on the model with no choice and hence there is no room for fund manager to take a different position. Auto rebalancing of equity and debt is the best part of balanced funds. The debt part is also actively managed.
The fund in the long run has always beaten both the benchmark and also the category average. The returns cannot be compared with other aggressive balanced funds for the reason of dynamic asset allocation of the fund. It may give less return when markets moves continuously in the northward direction but will surely protect your investment when market falls heavily. The fund is suitable for first time investors and for conservative investors who are worried about the high volatility in the market. The fund is also suitable for those whose time horizon is around 4-5 years. This fund can give 3-5% more compared to traditional investment avenues like fixed deposit or postal schemes if you understand the risk between the investment periods.
About Pankaaj Maalde
The author is a CERTIFIED FINANCIAL PLANNER by Profession. He is preparing comprehensive financial plans for the Clients. He holds Bachelor Degree in Commerce and Law. He is also IRDA and AMFI Certified. He has over 12 years of rich experience in the field of Financial Services with special expertise in Life Insurance, Loans and Mutual Fund products.
The author can be contacted at firstname.lastname@example.org.
Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. The author does not accept any liability whatsoever arising from the use of any of the above contents.