Moneycontrol.com
Rise in stock prices and news reports of market benchmarks hitting new high do attract investors to equity markets. At the same time unpleasant memories of losses incurred in the past make many think twice before investing in stocks. In such circumstances, it makes a lot of sense to invest in a scheme that offers to invest in shares and at the same time contain downside in volatile markets. ICICI Prudential Balanced Fund (IPBF) can be an investment option which can be looked at with a timeframe of five years.
The scheme
IPBF was launched in October 1999 and as on December 2014 has an asset size of Rs 1286 crore. The scheme is benchmarked against Crisil Balanced Fund Index. Yogesh Bhatt and Manish Banthia are the fund managers of this scheme.
Asset allocation
The fund intends to invest minimum 65% of the money in shares. Investments in shares are capped at 80% of the scheme's assets. Bond exposure of the scheme is kept in the band of 20% minimum and 35% maximum. Exposure to both these asset classes, ensure that the asset re-balancing is an ongoing process as the prices of underlying assets change.
Portfolio composition
Being a balanced fund IPBF has invested 71.37% of money in equities and rest in debt. Banking and financial services, automotives and engineering are the top three sectors with 20.76%, 11.76% and 6.82% respectively. These three sectors account for 39.34% of the scheme. The scheme has a well diversified equity portfolio of 55 stocks. The bond portfolio is focused on keeping credit risk low as almost 20% of the scheme money is invested in government securities and AAA rated securities. Bond portfolio has an average maturity of 10.11 years.
Investment strategy
The equity portfolio of the scheme is constructed with a large cap bias which helps to contain risk. However to boost portfolio returns, the scheme does invest in shares of mid-sized companies, such as City Union Bank, Sanofi India, Reliance Capital and Federal Bank. Investments in shares from banks, industrial goods, construction projects sectors ensure that equity portfolio is well aligned to benefit from an economic recovery.
Bond portfolio has minimum exposure (around 1%) to AA rated papers, which talks about the fund manager's focus on high credit quality. However the fund manager has positioned the portfolio to benefit from down-cycle in interest rates. The scheme has investments in long term government securities which should respond positively to fall in interest rates. When interest rates fall, the bond prices go up which brings in capital gains to the investors in addition to the interest payable on bonds.
The investment strategy thus is aimed at bringing the best of both asset classes – equity and debt.
Performance of the scheme
The fund has done extremely well over three and five year time period by offering 27.3% and 18.6% returns respectively. The fund has beaten the category average and Nifty by a good margin. Do refer table for better understanding of the performance numbers.
| Returns (%) | 1 year | 2 years | 3 years | 5 years |
| Scheme Returns | 50.7 | 28.0 | 27.3 | 18.6 |
| Category average | 40.4 | 20.4 | 17.4 | 10.2 |
| Difference of fund returns and category returns | 10.3 | 7.6 | 9.9 | 8.4 |
| Nifty | 38.26 | 19.8 | 19.99 | 11.37 |
Source: Moneycontrol.com / All numbers are annualized.
It is better to conduct a peer comparison when it comes to performance numbers and the scheme has done well on this parameter too.
| Scheme Name | 1 year | 3 years | 5 years |
| ICICI Prudential Balanced Fund | 50.7 | 27.3 | 18.6 |
| HDFC Prudence Fund | 58.1 | 24.9 | 17.6 |
| HDFC Balanced Fund | 56.4 | 26.6 | 19.2 |
| UTI Balanced Fund | 38.1 | 20.9 | 12.3 |
Source: Moneycontrol.com /All numbers are annualized.
For last five years, the scheme has outperformed the benchmark and the category average. It is important that the balanced funds contain downside. IPBF delivered on this parameter too in 2011 when equity markets offered negative returns. The scheme lost 9.5% as against 24% loss posted by Nifty.
Risks
The fund has a sizeable exposure to shares, which makes it a high risk investment. Sustained fall in stock markets can lead to loss of capital invested in IPBF. The fund can underperform Nifty and the broader equity markets in case of sharp rises in stock prices in a very short span.
Should you invest?
The fund is a good investment option for investors keen to take a five year view on Indian equities. The ability to generate high returns without taking undue risks consistently makes it worth investing. IPBF is treated like an equity fund for the tax purpose. Gains arising out of investments held for more than one year are tax free. It is better to invest in this scheme through systematic investment plan with a five year time frame.
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