|
Balancing the investment portfolio
The journey of construction to fructification of an investment portfolio is a long one and there are several building blocks that give it a shape, hold it together and guide it towards success gateway. These blocks if not identified early and fitted ideally can play havoc with the investor's goal. The process can well be implemented if we adopt a "Balanced" approach during investment life cycle. Investors should ensure that his / her investments are in line with his / her attitude to risk so that he/she does not get exposed to additional risks which can jeopardize his / her intended investment goal. When capital markets are challenging and highly unpredictable, this is all the more important. It might happen sometime when investors find himself / herself overexposed or underexposed to a particular asset class leaving the portfolio open to market's unpredictability. This is where Balanced Funds come into the picture. Investors looking to strike a balance between growth and stability in the face of ever-changing debt / equity market scenarios would find this as an appropriate investment option.
Balanced Funds vs portfolio of Equity and Debt fund
There has always been a debate on investing into a balanced fund vs exposure into individual debt and equity funds. While statistical findings based on performance of above two set of investment cannot be a decisive choice, an average investor can go for a fund that offers the best of both worlds. Moreover, investment into balanced funds is meant for a longer period of time and they are best suited given the fact that they can play out the market volatility and cycles more judiciously.
Why one should choose balanced fund in their portfolio?
Balanced Fund offers the best of both the worlds - a single route that helps optimizing the portfolio performance by allocating money to equity that provides momentum to returns and to debt that lends relative stability & comfort to the portfolio. Such funds facilitate automatic rebalancing of the portfolio. Investors may not have the desired skills and time to do for themselves. Based on their stated investment objective & market dynamics the fund does the core task for the investors. Funds in the category offer a chance to earn higher than inflation returns. The equity allocation in the portfolio comes with a potential to outdo inflationary blips. There have been many instances in the past where such funds have been able to deliver inflation beating returns. Balanced Fund helps in portfolio diversification with allocation to different asset class. Equity and Debt traditionally have low correlation which works in favor of portfolio performance. The allocation to different asset class helps in moderating the volatility of the overall portfolio. Tax efficiency of overall structure. An investment in a fund that invests predominantly in equities and marginally in other assets like debt and gold would be more tax efficient than investments in three funds of the same proportion viz equity fund, debt fund and gold etf.
What kind of Balanced Funds in our investment portfolio
Given the choice, balanced funds can play a useful role of anchor in your portfolio, while remaining a diversifying tool. Now, the next comes in mind is which kind of balanced funds should ideally be picked as market is swarmed with different names and flavors. Some are equity oriented balanced fund, some debt oriented balanced fund while there are balanced advantage funds as well. Further to this there could be different fund strategies across fixed income portfolio like some may be managed with a focus towards accrual income while other may be actively managed with focus on duration management. You would agree that while the underlying theme remains the same i.e. to spread the assets into debt, equity and others but the funds adopt different investment styles and portfolio positions to take on ever changing market dynamics.
There is no silver bullet as far as investment is concerned, no fund can be termed "One size fits all" However, as a part of core portfolio, balanced funds which avoid extreme tilt to an asset class and which have more equitable distribution between debt and equity & any other asset class can be considered by investors. Such funds are true to their label and work to investor's advantage given his /her stay for a significant period of time. Last two year has been phenomenal for the funds in this category and the category is in the limelight for its outperformance over other categories. Funds which have seen full market cycles and shown performance without major style deviation should be given preference. Investors may put attention to those funds which adhere to balance structure over a period of time.
Give time for fructification
The job is tougher post fund selection since you have to give significant time to see the fruits of your seeding. If not determined, many of us lose nerves amidst market noise and gyrations and this leads to cracks in our investment plan. Do remember your long-term investing behavior is far more important to success than the fund you pick or the exact asset allocation you choose. Message is simple yet hard - behave well! Lastly, avoid taking investment as an even based activity. A disciplined route with a small sum of money regularly can work with greater power of compounding and brings significant impact on wealth accumulation.
The article is written by Rajnish Kumar - Senior Vice President (Products) working with UTI Mutual Fund. Views expressed here are individual and investor may consult their financial advisor for any investment decision.
Share this article
|
AMC Speak