Why

Balanced Funds Don’t Make Sense

Facts:

• Our analysis shows that a segregated allocation of (70% Equity + 30% Debt) to
funds consistently outperforms investing in Balanced funds.
• For every INR 10 lacs invested for 5 years, this on average translated to an
opportunity loss of ₹2.35 lacs or 23.5% of the original invested amount.

Why does it make sense to invest in Equity & Debt separately?

1. In a Balanced fund, usually there is a single fund manager for the Equity &
Debt portion of the portfolio, which might not be the ideal scenario for your
portfolio. It is always better to keep your Equity & Debt investments separate,
so that you can choose the best fund manager for each asset class & get the
best of both worlds.

2. Below is a comparison of the performance given by Balanced funds, with
respect to their Equity & Debt counterparts from the same Asset Management
Company (AMC):

30.00 3 Year Rolling Post-Tax Returns for the last 5 years

Average Difference: 2.3% p.a
26.00
Rolling Returns (CAGR %)

22.00

18.00

14.00

10.00
Oct-15
Nov-15
Dec-15
Jan-16

May-16

Oct-16
Nov-16
Dec-16
Jan-17

May-17
Aug-15
Sep-15

Feb-16
Mar-16
Apr-16

Jun-16
Jul-16
Aug-16
Sep-16

Feb-17
Mar-17
Apr-17

Jun-17

Balanced Funds 70% Eq + 30% Debt combi

Balanced fund Portfolio – Average of HDFC Balanced, ICICI Pru Balanced & SBI Magnum Balanced fund.
As per our recommendation to keep Equity & Debt investments separate, the above
analysis shows that a combination (70% Equity + 30% Debt) fund has consistently
Equity + Debt Combination Portfolio consists of funds from the same AMC’s as the Balanced funds.

outperformed Balanced funds.

Data as on 31st July 2017.
Despite the Debt taxation on the Debt fund, the combination has managed to
outperform a basket of Balanced funds across all observations on a 3 year monthly
rolling return basis for the last 5 years.

The graph below depicts the wealth differential1 between investing INR 10 lacs in
Balanced funds v/s investing the same individually in a (70:30) Equity + Debt
combination:

30.00 Additional Wealth Created: 2.35 Lacs

25.30
25.00 22.95
Wealth Created (In Rs. Lacs)

20.00

15.00
10.00 10.00
10.00

5.00

0.00
1 2

Balanced Funds Equity + Debt (70:30)

As seen above, for every INR 10 lacs the investor would have invested in a Balanced
fund, they would have incurred an opportunity loss of INR 2.35 lacs or 23% of the
original invested amount, as against a diversified Equity + Debt (70:30) combination
over a period of 5 years.

Thus, this effectively demonstrates that asset allocation should be decided at the
balance sheet level and not at the Scheme level.

1 Based on historic returns