Should you invest in the latest, true-to-label balanced hybrid mutual funds?
mutual funds have only one mandate: to maintain ‘balance’ between equity and debt. However, this is not the way that the existing balanced funds in India have been managed over the years. Most funds in this segment maintain a tilt towards equities to qualify for the preferential equity taxation.
This bias takes the balance out of the balanced funds. This seems to be the pitch of newer, pure-play balanced hybrid funds. Two recent offerings—WhiteOak Capital Balanced Hybrid and 360 ONE Balanced Hybrid—are positioned to offer a true-to-label balanced strategy.
Both will strive to rebalance the equity-debt mix to 50:50 whenever the asset allocation limits are breached on either side due to market movement. Should you care about this at all? The answer may vary depending on how you respond to risks in your portfolio. Equity investments can potentially be very rewarding in the long term, but tend to exhibit intermittent volatility.
Debt investments, on the other hand, provide stability, but offer lower returns than equities in the long run.
If you opt for a skew in either asset class, you are giving up on something: high returns or stability. If you are overcommitted to equities, you may experience stress if the market nosedives. On the flipside, you may feel regret if the market goes on a multi-year run while you remain underexposed to equities.
It is when investors are exposed to market extremes that emotions are triggered and mistakes happen. According to a study by WhiteOak Capital AMC, the 50:50 equity-debt mix is the optimal combination for healthy returns at subdued risk. When equity exposure is less than 50%, the portfolio exhibits lower volatility and offers high risk-adjusted return, but gives poor overall return.
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