Mutual fund investors have been in love with balanced schemes or equity-oriented hybrid schemes for a while now. These schemes witnessed 139 per cent rise in their assets under management in 2017.
Since they invest in a combination of equity and debt, they are relatively less volatile than pure equity schemes that invest their entire corpus in stocks. This is the reason why most mutual fund advisors recommend balanced mutual fund schemes to first-time investors to mutual funds and ultra conservative equity investors.
Are you looking to invest in balanced schemes, but not sure which one to pick? Here are our recommended schemes. You may invest in these schemes with a minimum investment horizon of five years. We closely track these schemes. If any scheme is faltering for a long period, we would let you know about it. We would also tell you whether you should sell it, and replace it with another scheme. We publish the updated recommendations in the first week of every month. Take a look at our recommend schemes below.
Here are a few points you should keep in mind while investing in a balanced schemes.
a) Balanced schemes are not risk-free investments. These days many mutual fund investors are using this sales pitch. However, do not fall for it. A scheme that invests at least 65 per cent in stocks, cannot be entirely risk free. Yes, it is relatively less risky than pure equity schemes that invest 100 per cent in stocks.
b) Balanced schemes do not guarantee returns or regular dividends. Mutual fund schemes do not guarantee any returns. The returns from the schemes would be based on the performance of their investments. Similarly, balanced schemes may have an enviable record of paying regular dividends, but don't take that for granted. They may not declare dividends during bad phases in the market.
c) Balanced schemes are not tailor-made for retirees. As said before, they do not guarantee returns. So, retirees should not bank on them for their living expenses. If they have the risk appetite and investment horizon of five years or more, retirees can invest in them and take money out of them regularly to supplement their income.
d) Lately, many balanced schemes have lapped up a chunk of midcap stocks and longer tenure government securities. These investments make them vulnerable during a market downturn. If you are a conservative investor, you should choose a scheme that plays it safe.
If you are interested to know more about how we picked these schemes, here is our methodology. Please take a look.
Methodology
ET.com Mutual Funds has employed the following parameters for shortlisting the mutual fund schemes.
1.
Mean rolling returns
: rolled daily for the last three years.
2.
Consistency
in the last three years: The three-year period is divided into smaller time periods each with a progressing weighting.
3.
Downside risk
: We have considered only the negative returns given by the mutual fund scheme for this. X =Returns below zero Y = Sum of all squares of X Z = Y/number of days taken for computing the ratio Downside risk = Square root of Z
4.
Outperformance
: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme - [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5.
Asset size
: For equity diversified funds, the threshold asset size is Rs 100 crore, and Rs 50 crore for balanced funds.
We have also conducted a back testing of our model portfolios. These returns are forward returns from the base date.
(Disclaimer: past performance is no guarantee for future performance.)
