FundsIndia Recommends: Tata Balanced Fund

February 22, 2017 . Bhavana Acharya
• Consistent performer across 3 and 5-year time frames
• Contains losses despite higher equity exposure
For whom?
• Suitable for beginner investors in equities

Ranking the one-year returns of balanced funds will not have Tata Balanced in the top quartile. Yet, the fund remains among the best in its category, with a solid long-term record of consistently clocking above-average returns. It ranks in the top quartile in the 3, 5, and 10-year periods. It is able to participate well in market uptrends thanks to a higher average equity exposure while still managing to keep losses in check in correcting markets.

The fund is a good fit for beginner investors who want to enter equities or for those who want equity exposure with limited downside risks. The fund requires a horizon of 3-5 years at least, being among the more aggressive balanced funds.

Portfolio and strategy

Tata Balanced maintains an average equity exposure of around 73-75 per cent, among the highest in its category. Only HDFC Prudence matches the fund’s equity to debt allocation. With the higher equity holding, the stock choices in a market that defied expectations added to the fund’s underperformance compared to the chart toppers in 2016. The short-term underperformance can be attributed to a few reasons:

One, the fund follows a growth-at-reasonable-price strategy and does not veer too much towards pure value stocks. Thus, it held low exposures to sectors such as metals and energy, which were among the top gainers last year. Funds such as HDFC Prudence and ICICI Prudential Balanced had much higher holding in these sectors, and thus gained smartly. Two, Tata Balanced also pruned exposure to several NBFC and other finance stocks such as CARE, Kotak Mahindra Bank, Cholamandalam Investment & Finance, and Manppuram Finance, owing to their sharp rally. This stymied returns as most of these stocks corrected only at the end of 2016. Three, the fund continued to maintain its exposure to stark underperformer pharmaceuticals. Only from July 2016 onwards did the fund begin to cut holding gradually, though the sector continues to have among the top allocations in the portfolio.

Tata Balanced has otherwise got its sector calls on point, whether in 2016 or in earlier years. For example, it correctly picked up software stocks in 2013 and pruned it in 2014 and again in 2016. It added to construction and cement in 2014, with these stocks soaring in the year. As with most balanced funds, Tata Balanced actively moves across market caps. It has upped large-cap exposure through 2016, more than peer funds.

Its current portfolio presents a good mix of cyclical sectors and consumer-facing ones that should help it ride both the consumption and investment recovery. Banks form the highest holding, mostly through private sector banks such as HDFC Bank, ICICI Bank and Yes Bank. Other top plays include infrastructure and construction and cement stocks. The consumption play is primarily through auto stocks such as Maruti Suzuki and M&M.


On the debt front, the fund has juggled duration and accrual, which few balanced funds do. With a good 16-18 per cent in gilts, the fund has gained well in the debt rally. In the past couple of months, though, the fund prudently cut gilt holdings in favour of money market instruments. In corporate debt, the fund does not take credit calls, and mostly holds AAA-rated papers.


On a three-year rolling return over the past ten years, the fund has beaten the category average and its benchmark CRISIL Balanced Fund Aggressive index all the time. This shows the fund’s strong record of consistent long-term performance. On an average, the extent of this outperformance over its category is a good 3 percentage points.


Owing to the higher equity exposure and active portfolio churn, Tata Balanced has a slightly higher volatility measure. However, volatility is far lower than HDFC Prudence, which has similar equity exposure. Despite both higher volatility and equity holding, the fund’s Sortino measure holds well above the category average. Sortino measures downside volatility – i.e., deviation in returns below the average. For a balanced fund, which aims at containing downsides, it is an important metric.

On risk-adjusted returns too, measured by Sharpe, the fund scores high. Tata Balanced, in fact, is among the few funds that consistently deliver above-average returns, with higher Sharpe and a higher Sortino.

Pradeep Gokhale and Akhil Mittal are the fund’s equity and debt managers, respectively. The fund’s AUM is Rs 6,565 crore.

FundsIndia’s Research team has, to the best of its ability, taken into account various factors – both quantitative measures and qualitative assessments, in an unbiased manner, while choosing the fund(s) mentioned above. However, they carry unknown risks and uncertainties linked to broad markets, as well as analysts’ expectations about future events. They should not, therefore, be the sole basis of investment decisions. To know how to read our weekly fund reviews, please click here.

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