Are you looking to participate in the equity markets, but also seek some protection from its vagaries? You could consider investing in the SBI Magnum Balanced Fund, which has had a reasonably good track record over the last five years.

The fund, which generally holds 25-35 per cent in of its holdings in debt instruments, has delivered compounded annual return of 10.9 per cent over the past five years. While this performance is not top-of-the-class, it betters or equals returns clocked by many seasoned diversified equity funds during this period.

Performance and Strategy

In the last one year, Magnum Balanced has topped the chart of equity-oriented balanced funds with 17.5 per cent returns. This is about 4 percentage points higher than its benchmark – the Crisil Balanced Fund Index. In terms of consistency in returns across longer-time frames though, funds such as Birla Sun Life 95, HDFC Balanced and Tata Balanced, score. Hence, this fund can, at best, be held as a diversifier.

The fund’s bias towards mid- and small-cap stocks (those with market capitalisation of less than Rs 7,500 crore) has helped it outdo its benchmark in rallies. Magnum Balanced takes exposure to mid- and small-cap stocks to the extent of 45 per cent of its total portfolio. In the 2012 rally, for example, the fund bettered the returns of the Crisil Balanced Index by 13 percentage points. This was repeated in 2009. The bias towards mid-caps did not hold the fund in good stead in the market falls of 2008 and 2011, though.

The mid-cap orientation does peg up the risk a bit. But certain strategies followed by the fund since the change in management in early 2012 make its prospects more favourable. For one, it focuses on quality stocks in the mid-cap space. It also books profits periodically – for instance, Amara Raja Batteries, DB Corp and WABCO during the last year.

It also seems to partly follow a value-oriented approach to building its portfolio. Lying low on consumer non-durables and exiting a few pharma stocks, such as Torrent Pharma, Cadila and Dr Reddy’s in the last few months, thanks to the expanding valuations in these sectors, is one instance. Re-entering the beaten down engineering and construction segment through stocks such as Elgi Equipments in recent months is another.

Besides, Magnum Balanced plays it very safe on the debt side. Its investments predominantly include AAA and AA+ rated corporate bonds and non-convertible debentures, apart from government securities.

As of June 30, the fund holds 75 per cent in equities and 15 per cent in corporate debentures. It has an average market capitalisation of Rs 10,800 crore. The fund is invested in AAA and AA+ rated instruments from HDFC, Shriram Transport Finance and Power Finance Corporation on the debt side.

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