Balanced funds are increasingly getting popular among investors. This popularity is evident from the fact that 28% of the total net inflows in equity category came from balanced funds last fiscal.
AMFI data shows that of Rs1.30 lakh crore of net inflows in equity category, Rs36,610 crore flowed into balanced funds in 2016-17.
The AUM under the balanced fund category has more than doubled over the past one year. It has increased from Rs39,146 crore in FY 2015-16 to Rs84,763 crore in FY 2016-17, a growth of 117%. Currently, balanced funds contribute 13% of the total AUM under equity category, i.e., Rs6.73 lakh crore, as on March 2017.
One of the reasons for the rapid growth in this category is the changes in the tax structure of debt funds in FY 2013-14.
Another key reason for this trend is spectacular performance. Value Research data shows that balanced funds have delivered 17% and 15% over three- and five-year periods, respectively. Interestingly, the balanced fund category has delivered better returns than diversified equity, which delivered 14% over three- and five-year periods.
Advisers attribute rising interest in balanced funds to market volatility. “Most of the AMCs are promoting balanced funds due to market volatility and over-valuation. Many distributors are not recommending lump-sum amount in large-cap or mid-cap funds. In addition, investors have seen that balanced funds have the potential to deliver returns like large-cap funds,” says Virendra Ranawat of MySipOnline.
He says that balanced funds are increasingly gaining popularity among first-time investors also, as they want to start investing with moderate equity allocation.
Nisreen Mamaji of Moneyworks Financial Advisors believes that balanced funds will continue to maintain its growth momentum going forward. She says: “Debt funds returns are going to be low considering the declining interest rate regime. If someone wants to invest in debt funds, they any way have to stay invested for at least three years to avail of tax benefits. So it makes more sense to recommend balanced funds over debt funds to such investors to help them get better risk adjusted returns over three years.”
