It’s hard fact that
less than 10% Indians invest in equity. The sudden rise and fall in the market
make most of the people uncomfortable and therefore majority of the people treat
equity investment as speculation and stay away from it. But this is not a good
sign. You can’t ignore equity investment if your goals are long term. The high
volatility in our market is likely to continue but we need to find out the ways
to invest in equity. The best answer to this
volatility and to earn high return in the longer run is investing in balanced
funds of mutual fund. They provide an ideal mix of growth
(equity) and safety (debt instruments). Your success as an investor depends
upon your ability to choose the right investment options. This depends on your time
horizon, ability to take risk and most importantly your financial goals. It is
proven fact that in the developing country like India, equity will give good
inflation adjusted return if you invest with proper study and stick to your
investment. As balanced fund largely invest in equity, investors get the
advantage of participating in economic growth of the country.
It is not only
important to invest in equity for long term but it is equally important to
rebalance the portfolio periodically. Rebalancing is the process of restoring
your portfolio back to its original asset allocation. The rebalancing happens
automatically in balanced funds and the same gives you added advantage when the
markets are too volatile. The process is continuous which a normal investor
can’t do because of lack of knowledge and expertise. The returns in equity are
generated when the markets are low when you accumulate more units in your folio
in monthly SIP. The balanced fund
exactly does the same thing and therefore gives better result in the longer run
compared to traditional instruments. Investing in balanced funds of mutual fund is one of the
best solutions for investing in equity for the long term. Further if you invest
in balanced fund systematically via monthly SIP than is likely to give you
better result.
While assessing the
category I have found the ICICI Prudential Balanced Advantage Fund as more
investor friendly due to its flexible equity allocation. The fund was launched
in December 2006 and has a long track record. The current AUM being close to Rs.
7000 crores also tells us that smart money has already been there. The fund is
different from the other balanced funds due to its flexible equity allocation. It
is having an equity allocation range from 30 to 80% depending on market
conditions. The remaining part is invested in debt or arbitrage to generate
safer returns. This allocation based on an algorithm in equity can help
investors to safe guard their investment when markets are too high or too low. This
is one of the conservative funds in the category. The fund follows the price to
book value model while investing in the equity. The fund manager has to maintain
equity allocation based on the model with no choice and hence there is no room
for fund manager to take a different position. Auto rebalancing of equity and
debt is the best part of balanced funds. The debt part is also actively
managed.
The fund in the long
run has always beaten both the benchmark and also the category average. The
returns cannot be compared with other aggressive balanced funds for the reason
of dynamic asset allocation of the fund. It may give less return when markets moves continuously
in the northward direction but will surely protect your investment when market
falls heavily. The fund is suitable for first time investors and for
conservative investors who are worried about the high volatility in the market.
The fund is also suitable for those whose time horizon is around 4-5 years.
This fund can give 3-5% more compared to traditional investment avenues like
fixed deposit or postal schemes if you understand the risk between the
investment periods.
This article first appeared at indianotes.com
http://www.indianotes.com/Finance-How-to/ICICI-Prudential-Balanced-Advantage-Fund--Hybrid-fund-to-beat-the-volatility/195799/6/PF
