Launched on November 3, 1999, ICICI Prudential Balanced Fund is an equity-oriented hybrid fund with average assets under management (AUM) of Rs 344.23 crore as of September 2012. Unlike the category, whose assets have decreased by close to two per cent over the past year, the fund's AUM has grown by nearly 20 per cent. The fund has been ranked CRISIL Fund Rank 1 (top 10 percentile of the CRISIL Mutual Fund Rankings) in the past quarter and in the top 30 percentile since March 2011. Yogesh Bhatt (since February 2012) and Avnish Jain (since January 2011) manage the equity and the debt portion of the fund, respectively.
The objective of ICICI Prudential Balanced Fund is long-term capital appreciation and income generation through investments in equity and debt securities. The fixed income component in the fund helps reduce the overall risk of the portfolio. The fund aims to invest 65 per cent to 80 per cent of its corpus in equities and equity-related securities and the balance in debt and money market instruments. For tax purposes, balanced funds (with a greater than 65 per cent equity holding) are treated like equity-oriented funds wherein dividends and long-term capital gains are tax free.
As on November 30, 2012, the fund has outperformed its benchmark (CRISIL BalanceEX) across all time frames (six months, one, three, five, seven and 10 years). Although the fund has underperformed the category in the five-, seven- and 10-year periods, the performance has improved in the recent periods. In the three-year time frame, the fund has outperformed with 11.9 per cent returns compared to the benchmark's 6.2 per cent and the category's 8.7 per cent.
The fund has also outperformed the S&P CNX Nifty across one-, three-, five- and 10-year time-frames.
Further, Rs 10,000 invested in the fund since April 1, 2002 would have grown to around Rs 58,353 (CAGR of 17.9 per cent) as on November 30, 2012. A similar investment in the benchmark and S&P CNX Nifty would have grown to Rs 38,707 (CAGR 13.3 per cent) and Rs 51,716 (CAGR 16.6 per cent), respectively.
A Systematic Investment Plan (SIP) investment in the fund would have resulted in double-digit returns, greater than a similar investment in the benchmark, across one-, three-, five-, seven- and 10-year time frames.
The fund has delivered higher returns at a lower volatility. Over a three-year period the fund has an average volatility of 12.8 per cent vis-a-vis the category's 13.3 per cent. The fund's Sharpe ratio (which measures the excess returns over the risk-free rate per unit of risk taken) is 0.8, which is higher than that of its category's 0.4.
Over the past three years, the fund has maintained its average equity exposure at 70 per cent, debt exposure at 27 per cent and rest in cash and cash equivalents.
On the equity front, the fund has invested in a blend of large and mid-cap stocks. In terms of market capitalisation, the fund holds 64 per cent of its equity portfolio in CRISIL defined large cap stocks as on October 31, 2012, while the rest is invested in small and mid-cap companies.
Over the past three years, top five sectors (banks, software, consumer non-durables, auto ancillaries and pharmaceuticals) constituted 57 per cent of the equity portfolio vis-a-vis 46 per cent by the category.
Over the past three year period, compared to the S&P CNX Nifty, the fund was overweight on banks, consumer non-durables, auto ancillaries and pharmaceuticals. During the same period, the representative indices for these sectors - CNX Bank, CNX FMCG, CNX Auto and CNX Pharma - gave superior annualised returns of 10.3 per cent, 28.1 per cent, 15.4 per cent and 17.9 per cent respectively, against 5.3 per cent annualised returns by the S&P CNX Nifty as on November 30, 2012.
Over the past three-year period, the fund has held 33 companies, on an average, in its portfolio vis-a-vis 44 for the category. Nonetheless, the fund's exposure towards top 10 stocks is comparable to that of the category.
On the debt side, the fund has actively managed its duration (portfolio maturity) or interest rate risk as well as, maintained the portfolio liquidity in the three-year period. The fund increased the maturity of the portfolio when long-term yields fell and reduced it when they hardened. Also, it moved across cash and debt while, maintaining the average equity exposure at the same levels. Average maturity of the debt portfolio over three year period ending October 2012, is 1.8 years which is almost in line with the category's 1.6 years.
The fund has had an average 64 per cent exposure of its debt portfolio to government securities and highest rated papers (AAA/A1+) in the past three years. Also, since June 2011, the fund has invested an average 55 per cent (as a percentage of the debt portfolio) in (AA+/AA/AA-) papers.