With equity markets showing no signs of letting up, most portfolios will need to rationalise the risk. A dose of debt is just what is needed to do this. However, investors whose portfolios are too small to warrant investment in debt funds, or who do not have the time and inclination to align their asset allocation with their investment objectives and risk profile, can look at balanced funds. T
hese funds are predominantly equity-oriented, but also take some exposure to debt. SBI [Get Quote] Magnum Balanced Fund is one such scheme. Considering its good performance in the last five years, the fund is worth a look.
Performance. SMBF has given returns of 49.5 per cent, 43.24 per cent and 48.67 per cent over the last one-year, three-year and five-year periods, respectively. It outperformed the benchmark, Crisil Balanced Index, during all the periods.
In the last 20 quarters, the fund gave negative returns only in five quarters and has consistently been among the top performers in its category. On a comparative basis, the fund has slipped in the last one year. During this period, funds with very small assets under management, took concentrated bets and performed better. However, a look at the one-year rolling returns over the last three years puts the fund among the top three schemes.
Portfolio. Since equity-oriented balanced funds need to hold at least 65 per cent of their assets in equity instruments to avail tax benefits on dividends and capital gains, the risk profile of SMBF has to be evaluated. In the past, the fund has maintained its equity investment at around 65 per cent of the AUM.
Till mid 2006, it also had a mid-cap focus and benefited from the upswing in this segment. In the last six months, SMBF increased its equity exposure -- 75 per cent in its November portfolio. Its exposure to large-caps also increased -- 50 per cent of the equity component in the latest available portfolio.
A risk rationalising measure that the fund has been taking since 2006 is departure from a concentrated portfolio to a more diversified one in terms of the number of stocks. Earlier, its portfolio had around 25-30 scrips. Now. It has shot up to 40 scrips with no share constituting more than 6 per cent of the assets. Its top five holdings have always accounted for around 20 per cent of the portfolio.
Oil & gas and petroleum and refinery, housing and construction, cement, telecom and auto & auto ancillaries have been among SMBF's top sectors for more than a year. It continued to have substantial holdings of around 8 per cent in software as late as June 2007, which could have had a negative impact on its returns.
The equity exposure has been increased at the cost of the debt portion, which came down to 8 per cent in the November 2007 portfolio. The fund will benefit from this if the debt markets continue to remain dormant. The cash component of its portfolio is maintained at around 10 per cent.
Who should buy it? The scheme is suitable for those wanting to continue investing in the stockmarket with an option of moving into debt in case of a downside. SMBF's large equity exposure may make it unsuitable for the conservative investor, though the large-cap focus and diversified portfolio will go a long way in rationalising the risk. This will also provide steady rather than spectacular returns.
SMBF is one of the better funds in the category. Investors who are already invested should stay put. New investors should begin with small investments and increase it once they get a chance to evaluate the fund's performance when returns from equity markets come down.