Fund Pick: ICICI Prudential Balanced Fund

Balanced in the true sense

ICICI Prudential Balanced Fund has been ranked in the Top 30 percentile (CRISIL Fund Rank 1 and CRISIL Fund Rank 2) since March 2011 in the balanced category under the CRISIL Mutual Fund ranking. The fund has also been ranked in the Top 30 percentile (CRISIL Fund Rank 1 and CRISIL Fund Rank 2) under consistent performers – balanced funds for the past six quarters. Yogesh Bhatt has been managing the equity portion of the fund since February 2012, while Manish Banthia has been managing the debt portion since September 2013. The average assets under management (AUM) of the fund are Rs 588 crore as of December 2013.

Investment approach

The objective of the fund is to generate long-term capital appreciation and income from a portfolio that is invested in equity and fixed income securities. Balanced funds can invest from 65 to 80 per cent of their portfolio in equity and equity-related securities and 20 per cent to 35 per cent in debt and money market instruments. The diversification between equity and debt protects the portfolio from downside risks if either equity or debt enters a bearish phase. While equity has the potential to deliver superior long-term returns, debt provides stability to the portfolio. Balanced funds also enjoy tax-free returns for holding periods greater than one year, which is similar to equity funds. Dividends are also tax free in this category.

Performance

The fund has outperformed its benchmark (CRISIL Balanced Fund Index) and the category across various time frames – six months; one, two and five years for the period ended January 23 (see chart).

Over the long-term period of five years, the fund has given 20 per cent annualised returns as compared to 19 per cent and 15 per cent returns by the category and the benchmark, respectively. The fund has also outperformed the CNX Nifty across six months; one, two, five, seven and 10 years.

An investment of Rs 10,000 since April 1, 2002 in the fund would have grown more than six times to Rs 66,695 on January 23, 2014, at an annualised growth rate of 17 per cent. An equal amount invested in the benchmark (CRISIL Balanced Fund Index) would have returned Rs 40,988 at 13 per cent while the CNX Nifty would have yielded Rs 55,714 at 16 per cent during the same period.

A monthly investment of Rs 1,000 under a systematic investment plan (SIP) over 10 years would have grown to Rs 2.30 lakh at an annualised growth rate of 13 per cent. A similar investment in the benchmark (CRISIL Balanced Fund Index) and the CNX Nifty would have grown to Rs 1.97 lakh and Rs 2.10 lakh at the annualised growth rate of 10 per cent and 11 per cent, respectively.

Portfolio analysis

Over the past three years, the fund has maintained its average equity exposure at 69 per cent, in line with the category’s average of 70 per cent. The debt exposure of the fund had been 27 per cent and the remaining invested in cash and cash equivalents.

At the stock level, the fund has 40 equity stocks in its portfolio on an average as compared to the category’s 51 stocks over the past three years. The fund held 24 stocks for more than two years. Exposure to stocks such as Amara Raja Batteries, Balkrishna Industries and ITC – which have given annualised returns of 52 per cent, 38 per cent and 23 per cent, respectively, over the past three years – helped the fund to perform.

Over the past three years, the top five sectors constituted 60 per cent of the fund’s equity portfolio compared to 50 per cent of the category. Higher exposure to sectors such as automobile ancillaries, consumer non-durables, pharma and software has helped the fund to outperform. The CNX Nifty index has given 0.9 per cent annualised returns over the past three years, while CNX Auto, CNX FMCG Index, CNX Pharma and CNX IT have given 7.9 per cent, 21.8 per cent, 14.5 per cent and 8.3 per cent returns, respectively.

On the debt side, the fund held 50 per cent of the debt portfolio in sovereign and AAA/A1+ and equivalent papers over the past three years. The fund has invested 35 per cent of the debt portfolio in AA and equivalent credit quality papers, with the intent to generate higher accrual over the highest rated papers.

CRISIL Research