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Aarati Krishnan

IN THE two-and-a-half years since launch, Sundaram Balanced Fund comfortably outperformed its balanced benchmark, though it generated lower returns than some of the top-performing balanced funds, such as Zurich India Prudence Fund. Investors can retain their investments as the fund has fared reasonably well in the bearish market conditions prevailing since launch. But fresh investments can be put off until the fund proves itself over a complete market cycle.

Suitability: The fund is suitable for investors with a conservative risk profile. The fund periodically rebalances its portfolio to ensure an almost constant mix between equity and debt. This ensures that the fund is not overweight in equities during a bull market in equities or in debt, during a bull market in debt.

This approach reduces the number of calls that the fund manager takes with respect to the fund. This would ensure that equity exposure is automatically cut when there is a sharp rally in equities. But it could restrict upside potential in the NAV during a sharp run-up in any one asset-class. The fund could thus underperform balanced funds with an active approach to asset allocation under such circumstances.

Performance: On a point-to-point basis, between June 2000 and now, the fund's NAV has held at Rs10 per unit while the S&P CNX Nifty registered a 34 per cent erosion in value. This is quite a reasonable track record.

If one assumes a benchmark of 12 per cent for returns from the debt portion of the portfolio, a balanced benchmark with a 55:45 equity-debt mix would have registered a 7 per cent erosion in value since June 2000.

The fund has generated lower returns than Zurich India Prudence Fund or Pioneer ITI Balanced Fund, but the comparison may not be strictly accurate as the latter have a larger allocation to equity in their portfolios.

The fund follows a passive asset allocation strategy. That is, the equity-debt mix is determined not by the fund manager's view on the respective markets but by the need to maintain a constant balance between the two assets classes.

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