Please suggest a MF portfolio of balanced funds

POSTED BY sreedhar raj ON April 15, 2011 12:14 pm COMMENTS (10)

Hello experts,

                  I want to accumualte 1.5 to 2 crores after 25 years, for which I can invest Rs. 10,000/- per month through balanced funds(equity oriented). I don’t have the time to do portfolio rebalancing, so I have decided to go with balanced funds. Could you suggest 4 balanced funds through which I can start SIPs?

10 replies on this article “Please suggest a MF portfolio of balanced funds”

  1. ashal jauhari says:

    Dear Sreedhar, To accumulate 1.5 to 2 crore Rs. in next 25Y @ 10K mly investing amount, your corpus should grow at 12% yly rate. All the things are ok & such returns are possible but I have a question in this – Today India is a developing country & there is a fast pace growth as on date in Indian Economy, ‘ll it remain so for next 25Y or so. Please do think on this aspect also. Once after reaching a critical point, the growth ‘ll taper off to lower levels & same ‘ll be reflected in the performance of MFs be it Eq. or Balanced or MIPs etc.

    Thanks

    Ashal

  2. moneysights.com says:

    hi Sreedhar,

    you can look at the following funds & decide –

    1. HDFC Balanced Fund
    2. Reliance Regular Savings Fund – Balanced
    3. Birla Sun Life 95 Fund
    4. HDFC Childrens Gift Investment Plan
    5. UTI Childrens Career Advantage Fund
    6. HDFC Prudence Fund

    All 6 are good + they are less volatile than their category average.

    However, even 3 funds should suffice. Our picks would be HDFC Children’s, HDFC Prudence & Reliance Regular Savings Balanced. As a combination, a portfolio of these 3 funds offers enough aggression with controlled volatility.

    If you want to explore more, check out this link – https://goo.gl/TGkXJ

    Hope this helps.

    Santosh Navlani | moneysights.com

    1. Ramesh says:

      @Santosh
      What is the rationale of having 3 different funds in the same category? Any particular “forward-looking” reasons?

      1. moneysights.com says:

        @Ramesh,

        Didn’t quite understand your question? Can you please elaborate?

        Santosh

        1. Ramesh says:

          My question is why should one have 3 / multiple funds in the same category (in this case, balanced fund)?

          Are there any reasons which conclude that for future performances, having multiple funds are a better bet than having a single fund? Since you have the data (quite good actually), you can do a study like that.

          Say, 5 years ago, someone asked you the same question of wanting to have a portfolio of balanced fund/equity fund(s). What would have been your recommendation based upon the data which was available at that time? How would that recommendation worked out 5 years hence? maybe this will give some insight in choosing funds.

          1. moneysights.com says:

            Hi Ramesh,

            Thanks for elaborating. If i put a single-word answer to your 1st question – it would be “diversification”. While recommending portfolios to people, we “prioritize” downside protection over highest return. Its just ok to earn 1-2% less than giving up ones money in chasing highest return.

            To accomplish the above objective, its better for an investor to ride on 2-3 funds rather than putting all eggs in 1 basket. Most funds in India have performed in bursts. Only a few have been consistent. How long they will be consistent, is something nobody can predict. One never knows when the HDFC Prudence would start performing as good as average or lesser than category average. But somebody saying, it would continue its supreme performance for next 3 years, we doubt. Hence, whenever we recommend a portfolio, we recommend a set of funds to choose together.

            On your 2nd question – i’m not aware of any such study. But if i look at the data of these 3 funds in isolation, a person putting all his money in HDFC Prudence would have generated more returns thru a SIP over last 3 years than diversifying in these 3 funds together. But the difference in performance would not be significant!!! So, i guess most of us would be ok to compromise 10-20k here & there when we are aiming for 10 lakhs or above.

            Coming to the specific case of Sreedhar, he seems to be VERY CLEAR that he only wants Balance Funds. And hence the recommendation.

            Hope i answered your question. Though, i don’t have data source/ study to support this.

            i would also like to mention a few things here to support the above –

            FYI, if somebody here is using our invite-only product, they would have seen that we don’t recommend pre-decided portfolios. Its all risk-score based. And in many cases, to take care of asset-allocation amongst equity-debt, we do recommend 1 or more Balanced Funds in the Portfolio. And atleast based on past performance, our well-diversified portfolios across m-caps, sectors & stocks (while constructing the portfolio), we have seen a consistent out-performance.

            Another thing here is – most people seem to believe strongly that Balanced Funds don’t require re-balancing. We believe its NOT always the case. If one’s goal is approaching, he does need re-balancing.

            Santosh Navlani | moneysights.com

            1. Ramesh says:

              Thanks for the detailed reply. And i agree with that.

              I tend to suggest a max of 2 funds in any category. And work things out in a different way.

              Take 2 good-performing funds. If you have 20k to invest per month. do a 5 k SIP in each of them. and put the rest of the money in the fund which has “underperformed”. Buy the cheaper one.

              I still do not understand the term “risk” in terms of MF. And all those beta and alpha are really non-sensical.

          2. moneysights.com says:

            Hi Ramesh,

            If you picking 2 funds, starting a SIP in both & then again buying which is cheaper! Why so much work? And when you say you would buy a cheaper one, aren’t you sort of “timing” or maybe “micro-managing” in just a short period of time. Aren’t Mutual Funds supposed to take away the micro-management away from an investor once s/he has decided a portfolio of funds??


            Santosh

            1. Ramesh says:

              Surely it is a little bit of micro-managing and timing. I can also coin the term “value-buying”. I can keep that 10k for some months and then buy in lumpsum – done recently.

              In the end, its what the investor wants to do. I am comfortable in selecting a value based fund and a growth based fund, and buying which is not the current performer – on paper this is a good strategy. In any given time, the value-based and growth-based funds do not increase/decrease in the same way. Moreover, investing in different styles has known to decrease the overall downside risk, not necessarily to produce more return.

              Doing SIP in 4 different funds is simply buying the market at perhaps an elevated FMC. 🙂

              With your data, you can enlighten us about the relative differences b/w SIP in 2 good funds and 4 good funds. Tell us, is there any “significant” difference? Or is there any significant downside protection?

          3. moneysights.com says:

            @Ramesh,

            In one of my earlier comments, i had mentioned that a person would have earned higher return by putting all his money in HDFC Prudence rather than 3 different Balanced funds. This statement may hold true even for SIP in diversified funds – be it 2, 3 or 4. But that would be delving into spurious statistics!

            Your idea of buying 1 value fund & another growth fund with 10k aside for “timing” is good. One does buy lumpsum during correction times. i myself have done that couple of times because that makes “perfect” sense, only if 1 in really tracking markets regularly. Beginners in investing may not be able to do this everytime….and i’m sure its ok to let go of these opportunities. After all, investing has to be one’s side income. Not primary one.

            On FMC – most good funds in India have been justifying a higher expense ratio so far. Wouldn’t want to over-complicate things for fund/portfolio selection (atleast for equity & balanced funds) till the time actively managed funds’ better performance comes down or the margin between them & passive funds narrow down.

            Santosh Navlani | moneysights.com

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