Balanced Funds have also created wealth for investors with moderate risk tolerance

Systematic Investment Plans (SIPs) in equity mutual funds (large cap, diversified equity, small & midcap and ELSS) have created wealth for the investors. In this article, we will discuss how SIPs in Balanced Funds have also created wealth for the investors in the last 14 years.

Balanced funds have been around in India for nearly two decades and good balanced funds have given excellent risk adjusted returns across various time periods. These funds typically have 60 – 70% of the portfolio invested in equities and the rest in fixed income securities. Based on the market conditions your balanced fund manager may rebalance the allocations to debt and equity slightly. SIPs in balanced funds are suitable for investors looking to retire in a few years, or who are investing for some medium term financial objectives.

Some of the key benefits of balanced funds are as follows:

   They provide diversification across asset classes, by investing in both fixed income and equities
   A significant portion of the balanced fund portfolio is invested in equities to generate good returns and create
      wealth for the investors
   Balanced funds have automatic portfolio rebalancing built in due to investment limits set for equity and debt. So
      in the bull markets , the fund manager sells equity to maintain its maximum level and vice versa. This strategy
      acts as a buffer against volatility
   As per income tax guidelines, balanced funds that have more than 65% of the portfolio allocated to equities are
      exempt from long term capital gains tax

In this article, we will discuss how SIPs in Balanced Funds have created wealth for their investors. For our discussion, we have selected 5 Balanced Funds that have given good returns in the last 14 years. This is, by no means, a comprehensive list of all the Balanced Funds that gave good returns in the last 14 years. We should also note here, some of these funds, based on their last 1 to 3 year performance, may not be the top performing funds in this category. This article aims to illustrate how investment in SIPs over a long term, have created wealth for investors in balanced funds, by leveraging the power of compounding. Each of the funds in our selection has created wealth for investors by giving compounded annual SIP returns of over 15% over the last 14 years. Since SIP investments are made over a period of time, the method of calculating SIP returns is different from that of Lump Sum investments. SIP returns are calculated by a methodology called XIRR, which is a variant of Internal Rate of Return (IRR). XIRR is similar to IRR, except XIRR can calculate returns on investments that are not necessarily strictly periodic.

For our examples, we have assumed a monthly SIP of Rs 3000 only, made on first working day of every month in the Balanced Funds that we will discuss. Let us assume the SIP start date was 14 years back in May 2000. Over this period, the investor would have invested Rs 5.1 lakhs in SIPs of the following balanced funds. Let us see how much wealth would they have accumulated, by investing in the following funds.

  HDFC Prudence:

The HDFC Prudence fund is one of the most popular funds in this category. The fund has given the highest compounded annual returns over the last 10 years, among all balanced funds. This fund was launched in December 1993 and has a large AUM base of over Rs 5000 crores. This fund is managed by Prashant Jain. The chart below shows the SIP returns of the HDFC Prudence fund, growth option, over the last 14 years.

If you had started a monthly SIP of Rs 3000 only in the HDFC Prudence fund back in May 2000, by now you would have accumulated a corpus of over Rs 26 lakhs, with an investment of only Rs 5.1 lakhs. You would have accumulated a corpus of Rs 5 lakhs by the middle of 2005 and a corpus of Rs 10 lakhs by the middle of 2007 and beginning of 2008. Despite the severe financial crisis in 2008, your corpus in the fund would have crossed the Rs 15 lakhs mark by the end of 2009. You would have crossed the Rs 20 lakhs mark by the end of 2010, and Rs 25 lakhs by end of March this year. Over the 14 year period the compounded annual returns on your SIP investment in this fund would be over 21%.

  ICICI Prudential Balanced Fund:

The ICICI Prudential Balanced Fund, a hybrid fund from the ICICI Prudential stable, one the best Asset Management Companies in India, was launched in Oct 1999. The fund has an AUM base of over Rs 625 crores and is managed by Yogesh Bhatt and Avnish Jain. The chart below shows the SIP returns of the ICICI Prudential Balanced Fund, growth option, regular plan, over the last 14 years.

If you had started a monthly SIP of Rs 3000 in ICICI Prudential Balanced Fund back in May 2000, by now you would have accumulated a corpus of over Rs 17 lakhs, with an investment of only Rs 5.1 lakhs. You would have accumulated a corpus of Rs 5 lakhs by the end of 2005 and despite the severe financial crisis in 2008, a corpus of Rs 10 lakhs by the end of 2010. Your investment value would have crossed Rs 15 lakhs by the end of last year. Over the last 14 year period the compounded annual returns on your SIP investment in this fund would be nearly 16%.

  SBI Magnum Balanced Fund:

The SBI Magnum Balanced Fund was launched in October 1995 2001. This fund has an AUM base of over Rs 470 crores and is managed by R. Srinivasan and D. Ahuja. The chart below shows the SIP returns of the SBI Magnum Balanced Fund, growth option, over the last 14 years.

If you had started a monthly SIP of Rs 3000 only SBI Magnum Balanced Fund back in May 2000, by now you would have accumulated a corpus of over Rs 18 lakhs, with an investment of only Rs 5.1 lakhs. You would have accumulated a corpus of Rs 5 lakhs by the end of 2005 and a corpus of over Rs 10 lakhs by the end of 2007. Your investment value would have crossed Rs 15 lakhs by the end of 2012. Over the 14 year period from 2000 to 2014, the compounded annual returns on your SIP investment in this fund would be close to 17%.

  Birla Sun Life 95:

Birla Sun Life 95 fund is one of the earliest balanced funds in India. The fund, from Birla Sun Life stable, was launched in February 1995. This fund has an AUM base of over Rs 630 crores and is managed by Nishit Dholakia and Prasad Donde. The chart below shows the SIP returns of the Birla Sun Life 95 fund, growth option, over the last 14 year.

If you had started a monthly SIP of Rs 3000 only in Birla Sun Life 95 fund back in May 2000, by now you would have accumulated a corpus of nearly Rs 19 lakhs, with an investment of only Rs 5.1 lakhs. You would have accumulated a corpus of Rs 5 lakhs by the end of 2005 and a corpus of Rs 10 lakhs by the end of 2007 / beginning of 2008. You would have crossed the 15 lakhs mark by the end of 2012. Over the 14 year period from 2000 to 2014, the compounded annual returns on your SIP investment in this fund would be 17.3%.

  Tata Balanced Fund:

Tata Balanced Fund was launched in October 1995. This fund has an AUM base of over Rs 600 crores and is managed by Atul Bhole and S.Raghupati Acharya. The chart below shows the SIP returns of Tata Balanced Fund, growth option, over the last 14 years.

If you had started a monthly SIP of Rs 3000 only in the Tata Balanced Fund back in May 2000, by now you would have accumulated a corpus of over Rs 19 lakhs, with an investment of only Rs 5.1 lakhs. You would have accumulated a corpus of Rs 5 lakhs by the end of 2005 and a corpus of Rs 10 lakhs by the end of 2007 / beginning of 2008. You would have crossed the 15 lakhs mark by the end of 2012. Over the 14 year period from 2000 to 2014, the compounded annual returns on your SIP investment in this fund would be 17.4%.

Analysis of risk

IT is seen that balanced funds have also created wealth for the investors. The returns of the balanced fund are a little less than large cap and diversified equity. Both balanced funds and equity funds, like large cap, diversified equity funds and small and midcap funds are equity market linked instruments and are therefore subject to market risks. However, the equity market risk exposure of balanced funds is considerably lower than large cap funds, since 25 – 30% of the balanced fund portfolio is comprised of fixed income securities. Therefore, the volatility of balanced fund investment is significantly lower than equity fund investments

Conclusion In this article, we have seen that systematic investment plans in balanced funds have also created wealth for their investors. SIPs benefit from the power of compounding, and therefore the earlier we start our SIPs in funds of our choice, the greater is the potential for wealth creation. If you are an investor with moderate risk tolerance, balanced fund can be a good option for investment. Through a disciplined investing approach you can create wealth and at same time moderate the risk exposure of your investment.

( Mutual Fund investments are subject to market risks, read all scheme related documents carefully.)

Benefits of investing in a mutual fund

There are number of avenues of investments :

Bank deposits

Postal saving schemes

Company deposits

Government Bonds

Investors feel they are better off by investing in bank fixed deposits, senior citizen schemes, postal schemes etc, as the amount of return is fixed ,and there is no danger of losing their invested amount.

Remember that the interest rates are linked to inflation, IF you wish to buy something worth Rs 1,10,000/- , but you have Rs 1,00,000/-. You feel that you will deposit Rs 1 lakh in bank, and next year after adding the interest you will buy it.But you cannot do so, as next year the price of article has gone up.

The difference between Fixed instruments and equity based funds are like between a salaried person, and a business man.

The salaried person knows that as long he is working, he is guaranteed a Fixed amount of salary, but a business man cannot guarantee how much he is going to earn next year or next few years.

As an investor, you would like to get maximum returns on your investments, but you may not have the time to continuously study the stock market to keep track of them.

Many investors feel that they can outperform mutual funds. After spending time, They may make money, but the amount invested in mutual funds would have better results , and without you having to do much. In the span of past 23years, I meet people who say they have made such good returns they made in such shares, but refuse to talk about other shares where they could not make more.

You need a lot of time and knowledge to decide what to buy or when to sell. A lot of people take a chance and speculate, some get lucky, most dont.

Mutual funds have full fledged research team that look into every aspect of a stock before they include it in their portfolio. , and have also other advantages,

if you say that you can outperform the mutual fund always, it may not possible You may be right some times. And not always if you insist, then one can only say that whatever profession you are in, is wrong, then you better become fund manager.

It is advised to better go through the mutual funds route.

(Mutual Fund investments are subject to market risks, read all scheme related documents carefully)

Investors ask

How long to remain invested in mutual funds ? what does long term mean ?

Many times, investors ,when they their equity investments have made gains , they sell them to book profits, whether they need the money or not. If any one tries to tell them about the power of compounding and the merits of staying invested, more often they just do not listen.

There is a story of two poor villagers who collect wood everyday to use as firewood to cook their daily meals. They have to walk quite far to collect their daily firewood. One day, both decide to plant trees near their houses to solve this problem permanently. Both the villagers see their plants growing into young trees, even as they keep walking up and down collecting firewood from other trees that are far away.

After some period, when the trees have grown little, One of the villagers gets impatient and cuts down his young tree. So he feels happy that For the next several days, he does not need to travel anywhere - he's got enough firewood at his doorstep.

Whereas the other villager decides to let his tree grow and continues collecting firewood from far. After a few days, the impatient villager runs out of his stock of firewood. He plants another sapling and joins the patient villager in his daily trips for firewood. The next year, he does the same thing again - cuts down his young tree, plants another one and enjoys the firewood for a few days.

By the third such cycle, the impatient villager realizes the folly of his actions. The patient villager's plant has grown into a large fully grown tree with numerous branches and twigs that he can use for firewood every day.

The patient villager stops travelling for firewood for the rest of his life - his tree is now large enough to provide him all the firewood he would ever need. The impatient villager continues his daily trek ,repenting at looking at his young plant and enviously at his neighbour's huge tree.

When you see profits in your mutual funds, you can be tempted to redeem the corpus and continue with the balance. Or, you can just let it grow until you retire or until you really need it. You will be surprised to see how much it has actually grown to, if you just let it be.

Remember, that 14 lakhs that was accumulated in a 10 year fund, grew to 2.6 crores by just leaving it there for the next 20 years.

If you really want to achieve your financial objectives,continuing to save alone is not enough, you must continue to remain invested till the time you need them

(Mutual Fund investments are subject to market risks, read all scheme related documents carefully)

Making Your Money Work

saving & investing.

Many investors , say that, they are saving regularly, since many years.

If you don’t spend most of your monthly income and just keep in bank accounts no doubt you are saving money, but not investing.

The basic reason for that is that money doesn’t retain its value.

Inflation eats away your savings, bit by bit. Prices rise and what was worth a hundred rupees last year is probably Costing about ten more this year.
The inflation rate is compounding and the inflation of one year feeds into that of the next year, and so on.

And that’s why we need to not just save, but also to invest our savings. Proper Investment means putting our money into some form whereby it will yield some gains which beats inflation.

Most of us are familiar with the ‘types of schemes’ that we can invest in.

These ‘types of schemes’ could be bank deposits, , shares , property, gold and deposits. Anything into which we can put in money and have it grow can be called an investment. ALL these deposit schemes cannot beat inflation and increase, Of course, just matching inflation should not be the goal of any smart investor.

Investments can become an independent source of income. And if you let this sum accumulate instead of using it as income then it can grow into a serious amount of wealth.

Take the example : You will be surprised that Rs1 lakh invested In mutual fund scheme in 1st December 1993 had become rs 39,31,710 on 31st march 2014.
Investing well over long periods of time will not just save you from inflation— it can also make you rich.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully

There is no gain without risk

Remember Fear will not Bring You Gains

After the rally on the equity markets investors wanted to know if they should sell out of their equity funds, book their profits and shift the money to safe fixed income investments. The market had only reached near about or little above 2008 levels.

many investors had faith in equities and stayed invested. On the contrary in fact, invested more

Many investors feel happy when the equities rally ,and sad when they are down. When the markets are up, they have a feeling that what ever they are gaining now, may be taken away. They redeem at every fluctuation in the market and feel happy , they have made profits , and wait for the market to fall .

You cannot always withdraw, when the market has risen to the maximum, and invest when the market has fallen the maximum.

On the contrary ,by withdrawing they have missed out the most profitable part of the coming bull run..

Regardless of what the future brings, make no mistake--fixed income returns in India will barely be able to cover the inflation rate.

Money invested in equity funds for LONG TIME will give much more returns than debt based investments

To get real returns from one's investments, there is no alternative to equities or equity-backed investments like mutual funds..

BE INVESTED FOR LONG TERM AND KEEP INVESTING REGULARLY

What are the mistakes normally investors make

1. INVESTORS FEEL THAT Funds with high NAVs are overpriced and funds with low NAVs are attractively priced:
Investing in NEW FUND OFFERS in order to buy units at par value:

This is either a misconception on part of the investor or deliberate mis-selling by the distributor or financial adviser.

Par value OR LOW NAV of a mutual fund unit is meaningless, because the unit by itself has no value. The unit derives its value from the underlying of stocks or bonds or a combination of both. Funds whether NFO or launched some time back, invest in the same universe of stocks at market price. The absolute value of the unit at which the investor invests in the fund is in itself irrelevant. It is true that you can buy a larger number of units by investing in the NFO. The unit by itself has no value. The growth in the Net Asset Value of the unit, over a period of time is relevant

Mutual fund units are not stocks, where a low share price may sometimes, not always, mean that the valuation of the share is attractive. At the cost of repetition it is important to reiterate that, a mutual fund unit in itself has no value. It derives its value from the underlying assets in its portfolio. The NAV is nothing but the current market price of the total underlying portfolio assets divided by the number of units issued by the fund. If the value of the underlying portfolio goes up, then the NAV will go up and vice versa

2. Investing in funds which gave high returns last year:

Recent performance is not always a good indicator of future performance. Paying too much importance to recent past performance and ignoring long term performance and other performance factors like, fund manager’s track record, portfolio composition etc is risky. You may be selling a good fund and moving to a not-so-good fund.
There are a variety of factors that determine future performance of a fund, like historical returns over various time scales, volatility, portfolio concentration risk, fund manager track record and investment style. You should take the advice of your distributor before investing.

3. Funds that declare high dividends are better: This is another misconception

The dividend that the fund pays is adjusted from the NAV. There is no benefit in getting a big dividend. The objective of mutual fund investment is to grow your wealth in the long term. You should be very clear about your investment objective. In the case of dividend plan, the investor gets dividend amount or money when the fund gives , WHEREAS in the case of Growth, the investor can withdraw the money, whenever he wants.

It is also not that As in dividend plan, NAV is less ,you will get more units than growth, so you will get more dividend or the RETURNS IN DIVIDEND PLAN WILL BE MORE THAN THAT IN GROWTH.

4.Book profits/ redeem because the funds have performed well.

Book profits in funds which are giving good returns, while hanging on to losers: It is the same mistake that a lot of retail investors in stocks also make. Greed and fear psychology takes over, and retail investors rush to book profits in funds that are doing well, in the fear that the value may go down in the future.. As discussed earlier, mutual funds are essentially long term investments. By booking profits in funds that have performed well, you are giving up future returns.

5. Withdraw because the funds have not given good returns

Many Investors say that, they have invested since past few years, and did not give good returns, or are at present ,they are less than the amount invested, so they want to redeem.

INVESTORS feel they would have got better interest ,if they had invested in fixed deposits. So now ,they feel ,that If they wait more, they may lose more.

Remember, as you have invested with a purpose in mind, do not get worried about the fluctuations in between. When you are nearing the purpose, sometime before, you can take a decision, considering the market conditions, switch over to other debt schemes.

Mutual funds does not mean only equity schemes, there are also balanced and debt schemes. The equity exposure ranges between 0 to 100 % equity across schemes. You may go for schemes with 25 to 65 % equity, depending upon your time frame and risk appetite.

Conclusion


Investors should avoid these common mistakes when investing in mutual funds. Mutual funds are long term investments. By selecting a good fund or a set of good funds, and remaining invested in them over a long period of time, investors can create wealth in the long term.

If you have a good financial advisor, your job becomes that much easier.

( Mutual Fund investments are subject to market risks, read all scheme related documents carefully)

Why investing in a mutual fund is a necessity for you

bank deposits, postal savings, bonds will not be sufficient .

Investors feel they are better off by investing in bank fixed deposits, senior citizen schemes, postal schemes etc, as the amount of return is fixed ,and there is no danger of losing their invested amount.

Remember that the interest rates are linked to inflation, IF you wish t o buy something worth Rs 1,10,000/- , but you have Rs 1,00,000/-. You feel that you will deposit Rs 1 lakh in bank, and next year after adding the interest you will buy it.But you cannot do so, as next year the price of article has gone up.

The difference between Fixed instruments and equity based funds are like between a salaried person, and a business man.

The salaried person knows that as long he is working, he is guaranteed a Fixed amount of salary, but a business man cannot guarantee how much he is going to earn next year or next 2,3 years.

When the Bandra hill road was closed for repairs, many business people from Elco Arcade, and nearby had to suffer losses, customers would go to linking road or Dadar, BUT after the repairs they are making good business. But you will agree that a good BUSINESS MAN will definitely earn more than the SALARIED person, but not assured. Many a times the business may suffer.

Someone had said “Fear Defeats more people, than any other thing in the world”. Investors should have patience, and let at least let one cycle go through. Long term, investor will get better results than deposits, and are also tax efficient.

INVESTORS, SHOULD FIRST OF ALL

   1. PROVIDE FOR THEIR PRESENT NEEDS
   2. KEEP SOME AMOUNT ASIDE FOR EMERGENCIES
   3. INVEST THE AMOUNT FOR THEIR FUTURE NEEDS

REMEMBER….., YOUR FUTURE NEEDS WILL BE MORE,

First of all, you will be hit by inflation, so whatever purpose , you are investing, like for your children’s education, marriage etc., or for your own comfortable life, remember that, then the expenses will be much more than what they are now, as everything would be costlier due to inflation.

Moreover for your comfortable retired life, apart from inflation, you should remember that you will be growing old, and may require more money , as what is considered as luxury now, may become necessity then. TODAY, you may just walk down some distance. or travel by bus, but years down the lane, you may have to travel by taxis, or even AC cabs. When you go out, instead of train, you may have to travel by flights.

Remember, as you have invested with a purpose in mind, do not get worried about the fluctuations in between. When you are nearing the purpose, sometime before, you can take a decision, considering the market conditions, switch over to other debt schemes.

IT is sad to say that even people, who are having good salaries, or people who have sold property, or got some good sum of amount, ARE having deposits in banks, but averse to mutual funds which is not good. Mutual funds does not mean only equity schemes, there are also balanced and debt schemes. The equity exposure ranges between 0 to 100 % equity across schemes. You may go for schemes with 25 to 65 % equity, depending upon your time frame and risk appetite.

( Mutual Fund investments are subject to market risks, read all scheme related documents carefully)