Balanced Mutual Funds Suffer From a Setback In Surging Markets

The recent news of better than expected returns, along with the high quarterly earnings from the corporates did take the benchmark indices Sensex and Nifty a record high. The SENSEX closed by 32,364 points and Nifty was up by 63 points at 10, 231 for the intra day higher.

The wholesale inflation was also recorded low for the month of September. It was 2.6 percent in September, 2017 as compared to a month earlier. The experts predict that the Nifty will cross the next important mark of 10,400 soon. But amidst this good news, there is a bad news for the balanced mutual fund shareholders.

Once preferred by the moderate investors have now become an appetizer for high risk group. Yes, the news confirms so.

What is a balanced mutual fund?

The balanced mutual funds are meant for investors with a low risk appetite.  In this investment, the fund managers invest both in stock and bonds. They earn the balanced title by keeping the balance between equity and debt.

Why they are at risk?

Investors prefer the balanced funds because they don’t want to take a high risk. But in the race to get a higher yield, unfortunately the balanced funds have become imbalanced. Here’s what Tanwir Alam, founder and CEO of Fincart has to say

 “Compared to a year back, balanced funds have increased their aggressiveness and most of them have allocated close to 75% to equity.”

Balanced Mutual Funds that crashed

Baroda Pioneer Balance Mutual Fund	4.35
Principal Balanced Mutual Fund	3.78
DSPBR Mutual	4.12
HDFC Prudence Fund	3.99
Mirae Asset Prudence Fund	3.75

It is believed that majority of the balanced mutual funds are pushing their envelope aggressively and putting their money in mid-cap funds in a bid to chase higher returns. Hence, these funds have chosen to invest in the riskier sectors. The Kunal Bajaj, founder and CEO of clearfunds, explicitly quotes that

 “Increased exposure to cyclical sectors rather than to defensive sectors is one of the reasons for their fall,”

While the debt part of the balanced fund is supposed to provide a cushion against the volatile market, but the fall in debt market and a rise of fiscal deficit and rupee depreciation has hurt the debt fund sentiment badly. Most of the gilt funds have witnessed a fall by 0.2%-0.6%.

In the end, we would like to conclude that contrary to a popular belief, balanced mutual funds are not a low risk product now. Most balanced mutual funds come with 65% equity exposure. The investors are recommended to go for large cap oriented mutual funds to avoid risk.