Last fortnight, we had commenced a discussion on Balanced Advantage Funds (BAFs) and noted that the average fall in returns in the BAF category has been around half of that of the pure equity categories of funds since the time the markets slipped a few months ago.
It is worth reiterating for the sake of easier comprehension, that a BAF starts off by investing 33% in pure equity and 33% in arbitrage to keep gross equity investments at or above 65% while investing the rest in debt securities. Their long term gains thus attract Equity taxation of 10% as against Debt taxation of 20% (with indexation).
Against this backdrop and as promised last fortnight, in this column, we shall proceed to take a closer look at some of the BAF products on offer from AMCs, their current asset allocation and perfor-mances. The BAF funds that we have selected to place under the spotlight are ICICI Prudential Balanced Advantage Fund, HDFC Balanced Advantage Fund and Tata Balanced Advantage Fund.
ICICI Prudential Balanced Advantage Fund, which was among the first movers in this segment, has an AUM of Rs 40,146 crore and its current Asset allocation mix is almost copy-book with around 34% in Equity, 33% in Arbitrage and 33% in Debt. Its top equity holdings are in Banks, Financial Services and IT companies. The returns recorded by this fund over a 1-year, 3-year and 5-year time period are 4.68%, 10.36% and 9.16% respectively.
HDFC Balanced Advantage Fund, which was another early mover, has an AUM of Rs 43,836 crore and its current asset allocation mix is 65% in Equity, 1% in Arbitrage and 34% in Debt. Its top equity holdings are in the Banking, Financial Services and Energy sectors. The returns recorded by this fund over a 1-year, 3-year and 5-year time period are 7.57%, 10.59% and 9.14% respectively.
Tata Balanced Advantage Fund is a relatively new entrant into this segment and it has an AUM of `5,045 crore. Its current Asset allocation mix is nearly 50% in Equity, 15% in Arbitrage and 35% in Debt. This fund’s top equity holdings are in the Financial Services, IT and Consumer Goods sectors. The returns recorded by this fund over a 1-year and 3-year time period are 2.29% and 9.98% respectively.
One would have noticed that asset allocation of these three funds varies in terms of pure equity exposure undertaken. Each fund has its own set of parameters for asset allocation and re-balancing and as long as investors get a slice of the upside while protecting the downside in a rapidly southward trending market, it is unlikely that they would complain. But at the same time, it is important for investors, with the help of their advisers, to discern and select the fund with the investment approach that is in sync with their objectives.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com