Investors Demand For Defensive Balanced Funds On The Rise

Mutual fund investors are increasingly seeking out defensive balanced funds off late as inflows into these funds rise to record levels. Hybrid defensive funds now account for 15.2 in August 2017 of the total assets under management of the top five asset management companies in August as compared to 14.8 percent in July.

Hybrid fund assets under management increased from Rs 1.74 lakh crore in July 2017 to Rs 1.83 lakh crore in August 2017. Hybrid funds include funds that have an equity corpus ranging from 15-70 percent in a mutual fund scheme, which includes equity monthly income plans, and dynamic asset allocation funds among them.

The rise in hybrid fund AUMs suggests investors are increasingly seeking the comfort of defensive funds. Distributors, too, are increasingly selling defensive funds as a part of investors’ asset allocation strategy as stock prices have soared and stock valuations are appear stretched on the higher side.

Says Nimesh Shah, managing director, ICIC Prudential AMC: “The rising inflows in hybrid funds shows that distributors are getting more conservative. Distributors are conscious of facing the customers after 2-3 years, and know that investors will come is when their experience with mutual funds is good. I would credit the Regulator, distributor and manufacturer a change that reflects the current market situation.”

The total assets under management of the top five Asset Management Companies which include ICICI Prudential AMC, HDFC MF, Reliance Nippon MF, Birla Sunlife AMC, and SBI MF increased by 2.2 percent in August 2017 to Rs 12.03 lakh crore, while hybrid funds saw an increase to Rs 1.83 lakh crore, an increase of 5.4 percent.

In fact, mutual fund industry is seeing rip-roaring inflows on the back of a strong increase in systematic investment plans. SIP inflows have increased from Rs 4947 crore in July to Rs 5206 crore in August ’17. The average mutual fund assets under management hit a new high of Rs 20.59 lakh crore in August as compared to Rs 3.26 lakh crore in March 2007.

Inflows into balanced funds stood at higher levels than the rest of the categories. Says Shah: “Almost Rs 8000 crore of sales has happened in balanced funds in July, and the trend is continuing in August.”

A large portion of MF sales still happens through the distributor network. Shah observes that when mutual fund customers have a better investor-experience 2-3 years down the line, they are likely to invest more money into mutual funds. He notes: “Distributors are aware of this and are selling more of these differential hybrid funds as the market is at higher levels.”