HNIs are increasingly investing in balanced funds to take advantage of the both worlds – equity and debt markets. AMFI data shows that the AUM of balanced funds under the HNI category increased to Rs51,000 crore from Rs19,200 crore a year back. It has grown by Rs31,782 crore or 166% in the year.
In May, the overall AUM under the category was Rs1.02 lakh crore. The AUM under balanced funds was Rs42,695 crore in May 2016.
The increase can be partly attributed to market gains. Some other reasons for the rapid growth are market volatility, decrease in interest rates of the traditional saving instruments, changes in the tax structure of debt funds in FY 2013-14 and consistent declaration of dividends.
“HNIs are interested in balanced funds as they want to protect their investments from the downside of market fall as balanced funds invest 65-70% of its total allocation in equities. Moreover, as the dividends generated by these funds are tax-free, balanced funds are gaining popularity among HNI investors. The regular declaration of dividends is also making balanced funds attractive,” says Mumbai-based Vishal Dhawan, founder, Plan Ahead Wealth Advisors.
He, however, believes that HNIs should not chase dividends. “Seeking regular dividends is not the right way of long-term investing as dividends are given from the distributable surplus which may vary from time to time, depending on the market conditions,” says Vishal.
Gajendra Kothari, CEO, Etica Wealth Management, seconds Vishal’s viewpoint. “HNI investors are much more cautious now as the markets are overvalued. Balanced funds provide stability during unfavourable market movements, and they are less risky than mid-cap funds. Instead of investing in a hot sectoral fund, HNIs are now taking fundamentals into consideration before investing,” says Gajendra.
The increase in investor interest has led to net inflows of Rs7,663 crore, up from Rs974 crore last year, shows AMFI data. The interest in balanced funds is also evident from the increasing folio count. Balanced fund folios have increased by 13.5 lakh in May 2017. The total number of folios have swelled from 25.66 lakh last May to 38.7 lakh at the end of May 2017, shows SEBI data.
The performance of the balanced funds also seems to be one of the reasons behind the growth of assets under balanced funds. Value Research data shows that balanced funds have delivered 17% over the one-year period.
“When it comes to investing, HNIs are no different from retail investors. They chase funds that generate higher returns. HNIs are investing in balanced funds as balanced funds are generating higher returns from six months to one-year horizon,” says Suresh Sadagopan, founder, Ladder7 Financial Advisories.
Gajendra says that even though the returns from balanced funds are slightly lower than diversified funds, these deliver better risk-adjusted returns.
