Fund review: ICICI Prudential Balanced Advantage Fund

Many retail investors are entering the markets through the mutual fund route for the first time. In a scenario where markets are trading close to their all-time high and earnings growth has been flat for the past four years, financial planners say that instead of investing in pure equity funds, first-time investors making should enter the equity market through dynamic asset allocation funds. These funds reduce or increase their exposure to equity in the portfolio based on market valuations and are less risky or volatile compared to pure equity funds. ICICI Prudential Balanced Advantage Fund, the largest in the space with assets of Rs 22,465 crore under management, uses the price-to-book value ratio of the market, to decide its equity allocation. Rebalancing is done on a daily basis. Its equity exposure can range anywhere between 30 per cent and 80 per cent, with debt making up the rest.

For example, when the Sensex was at 23,002 on February 29, 2016, with the price-to-book value of the Nifty at 2.81, the fund had a 76 per cent net equity exposure. With valuations inching up, the fund has trimmed its equity exposure to 37 per cent as of October 2017.

Over the past year, the fund has delivered a return of 16.08 per cent, and it also uses derivatives to hedge against the downside or generate arbitrage returns. The equity portion is mainly invested in largecap stocks, while in the debt portfolio, the fund does take some duration calls help make the most of rate declines. It also has some allocation to below-AAA corporate bonds for higher accruals.