Bal­anced funds see first out­flow in nearly five years

DNA (Daily News & Analysis) Mumbai Edition - - FRONT PAGE - Ku­mar Shankar Roy cor­re­spon­[email protected]­

Mum­bai: Once a hugely pop­u­lar prod­uct, bal­anced funds are on a weak foot­ing. In­vestors pulled out nearly Rs 1,000 crore from this cat­e­gory in Jan­uary, the first monthly out­flow in 56 months.

This is a telling sign for these hy­brid schemes that were sold to in­vestors, es­pe­cially re­tail cus­tomers, as a sub­sti­tute to bank fixed de­posits be­cause these funds gave some­what pre­dictable div­i­dends when the stock mar­kets were in rip-roar­ing form.

Just a year ago i.e, in Jan­uary 2018, bal­anced funds re­ceived net in­flows of a whop­ping Rs 7,665 crore. Twelve months later, the monthly in­flow pic­ture has com­pletely changed. Ex­perts at­tribute this change in for­tunes to the in­con­sis­tency of div­i­dends and the im­po­si­tion of tax on such div­i­dends. Add to this, bal­anced funds’ per­for­mance has been poor, with in­vestors los­ing up to 16% in the last one year pe­riod.

A bal­anced fund in­vests in a port­fo­lio with a mix of debt and eq­uity in­stru­ments. It is ideal for in­vestors with medium risk ap­petite.

“Af­ter at­tract­ing in­flows for 55 con­sec­u­tive months, bal­anced funds wit­nessed out­flows of Rs 952 crore. Net out­flows clubbed with MTM (mark-to-mar­ket) losses re­sulted in the cat­e­gory’s as­sets erod­ing by 2.1%, or Rs 3,803 crore, to Rs 1.76 lakh crore,” said Crisil.

Be­tween April 2017 to Jan­uary 2018, bal­anced funds had col­lected net in­flows worth nearly Rs 78,000 crore. But with the pop­u­lar­ity of the fund cat­e­gory wan­ing, the net in­flows dropped 85% to Rs 11,123 crore be­tween April 2018 and Jan­uary 2019. In­vestor fo­lios in bal­anced schemes are cur­rently at 64.09 lakh and there are 27 schemes counted as bal­anced by As­so­ci­a­tion of Mu­tual Funds in In­dia.

Rad­hika Gupta, CEO, Edel­weiss As­set Man­age­ment, told DNA Money, “Bal­anced fund flows have come down post the change in tax­a­tion of div­i­dends, given some in­vestors looked at this cat­e­gory as a monthly in­come as­set class. We be­lieve the cat­e­gory, par­tic­u­larly bal­anced ad­van­tage funds, con­tin­ues to have a lot of prom­ise, how­ever, for in­vestors with a three-year time hori­zon or more, and a need for mod­er­ate volatil­ity.”

Ex­perts feel bal­anced funds may have been sold wrongly at times, which may be back­fir­ing. “Bal­anced funds mainly sold very ag­gres­sively by bank­ing chan­nels. With a drop in FD rates, cus­tomers of these banks started to take money out. At that time, bank­ing chan­nels started to po­si­tion bal­anced funds as a sub­sti­tute for FDS with reg­u­lar and pre­dictable div­i­dend in­come op­tions. Now the chick­ens have come home to roost,” said Vi­jai Mantri, chief in­vest­ment strategist and founder-pro­moter, JRL Cap­i­tal.

Post-de­mon­eti­sa­tion, many risk-averse in­vestors were lured to make a switch from FDS to bal­anced funds. They were promised dou­bledigit re­turns and tax-free monthly div­i­dends. As mar­kets fell, bal­anced funds, which have quite sig­nif­i­cant ex­po­sure to equities, fell. Also, the Union Bud­get 2018 in­tro­duced a 10% tax on longterm cap­i­tal gains (LTCG) earned from the sale of shares held for more than one year. This 10% tax is also ap­pli­ca­ble on div­i­dend earned from eq­uity and eq­uity-ori­ented mu­tual funds. Ear­lier, in­come from div­i­dends was tax-free.

“With bond yields re­main­ing el­e­vated and eq­uity mar­kets also con­sol­i­dat­ing over the last few months, the per­for­mance of bal­anced funds has dipped re­cently,” said a mu­tual fund an­a­lyst.

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