Thursday, 3 November 2016

Mutual Fund of the month - ICICI Prudential Balanced Advantage Fund

ICICI Prudential Balanced Advantage Fund is a balanced category fund having a unique structure of allocating between equity and debt, using in house Price to Book value model. This fund can move in the range of 30%-80% of equity exposure, but will always maintain equity allocation above 65% by using equity derivatives, to keep the tax status of equity. As it can go beyond 65% too, so Fund management treats this fund as equity fund only, with less volatile returns. The primary reason I selected ICICI Prudential Balanced Advantage Fund is that it is an all weather fund which does well in all sorts of market conditions.


Fund Portfolio

ICICI Prudential Balanced Advantage Fund has a mix of large cap and mid-cap stocks. The fund since its inception continues to have large cap stocks, specifically private industry leading stocks. While large cap stocks represent established enterprises selected from the top 100 stocks by market capitalization, mid-caps are smaller business entities with long-term growth potential. Coming to the debt side, the funds hold high yielding 9.55% Hindalco bonds, treasury bills issued by RBI and Central government loan and State Development Loans.

Buying Low and Selling High

The basic equation for success in any market is to buy when the market is low and sell when the demand is high. The same goes with equity markets. Buy low and sell high and make money while you sleep. Though it sounds easy, but knowing when the market is at lowest point and analysing the highest point is challenging even for the market pros. ICICI Prudential Balanced Advantage Fund follows Price to Book model where it changes the allocation of equities and debt depending on the Price to Book ratio of Nifty. When the market does well, the fund moves out of debt investments into equities and vice versa, safeguarding your investments in market fluctuations.

As you see the above chart, ICICI Prudential Balanced Advantage Fund has given positive returns when the Sensex was negative. The main focus of any mutual fund investor is not to make money at once but at continuous intervals. The choice of fund manager to switch between equity and debt keep the twin emotions of greed and fear out of the minds of investors. The fund is truly an all weather fund. Take one example, BSE Sensex was trading at 22,994 on 9th May 2014. After 20 months, at the closing bell of 12 Feb, 2016, the Sensex stood at 22,996. ICICI Pru BAF managed to deliver returns of 8.65% in such bearish condition. In bull run, ICICI Pru BAF performs better than the market average. During the one year period of March 2014 to March 2015, ICICI Prudential Balanced Advantage Fund gave an astounding return of 47%.

Better returns than Bank FD

Bank FD is the most common instrument to gain money out of your savings. Over the years ICICI Balanced Advantage Fund has proved that even in bearish conditions, investors can get better returns than fixed deposits. The fund beat the returns from FDs over all four investment horizons that we considered (on 30 October 2015): one-, two-, three- and five years. Over the one-year horizon, it gave a return of 9.30%; over a two-year horizon it gave an annualized return of 19.57%; over three years, 17.56%; and over five years, 13.19%. Over all these horizons, an FD would have given an annualized return of 9%.

Tax Benefits

ICICI Prudential Balanced Advantage Fund is treated as an equity fund for taxation purposes. Long-term capital gains from it attract no tax while short-term capital gains are taxed at 15%. Whenever the fund’s allocation to equities goes below 65%, the balance allocation is made up by derivatives.

What's your number?

Buy right and sit tight. Decide the number you want to reach after investing for few years. To get the most out of this fund, investors must have long term horizon. is of opinion that investor must stay invested for 3 to 5 years to reap full benefits of this fund. Dynamic asset allocation Funds is our choice in the times of volatility.

Disclaimer - Mutual Fund investments are subject to market risks, read all scheme related documents carefully