In times of high equity market volatility, such as the one we are seeing right now, fluctuations in their asset values can be stressful for investors with moderate risk appetite or first time equity investors. However, as discussed many times in our blog, over a long investment horizon, no other asset class can match equities in wealth creation potential. As such equities should be a significant part of the asset allocation of investors looking for long term investment goals. Balanced funds are attractive investment options for investors with moderate risk tolerance, because they offer capital appreciation with limited downside risks. In fact, over the last one year balanced funds on an average have outperformed large cap and flexicap funds category. Reliance Regular Savings Fund – Balanced Option, which completed 10 years in June, has been one of the top performing balanced funds since its inception. The chart below shows the trailing annualized returns of the Reliance Regular Savings Fund – Balanced Option compared to the Balanced Fund category across several timescales (NAVs as on December 4, 2015).
Source: Advisorkhoj Research
The chart below shows the annual returns of the Reliance Regular Savings Fund Balanced Option (Growth) and Balanced Fund category, since the inception of Reliance Regular Savings Fund. We can see that the fund has outperformed the category in most years.
Source: Advisorkhoj Research
The Reliance Regular Savings Fund Balanced Option is suitable for investors looking for long term capital appreciation with moderate levels of risk. As such the fund is suitable for investors in the moderate risk category planning for retirement or other long term financial objectives. The fund was launched in June 2005 and has nearly
र 1,565 crores of assets under management. The expense ratio of the fund is 2.64%. The fund house, Reliance Mutual Fund, is one of the largest mutual fund companies in India. The fund managers of this scheme are Sanjay Parekh and Amit Tripathi. Morningstar has a 4 star rating for this fund.
The chart below shows the 1 year rolling returns of Reliance Regular Savings Fund Balanced Option since inception. Rolling returns are the total returns of the scheme taken for a specified period on every day/week/month and taken till the last day of the duration. In this chart we are showing returns on every day during the specified period and comparing it with the benchmark. Rolling returns is the best measure of a fund’s performance. Trailing returns have a recency bias and point to point returns are specific to the period in consideration. Rolling returns, on the other hand, measures the fund’s absolute and relative performance the timescale in question, without bias. The orange line shows the 1 year rolling returns of Reliance Regular Savings Fund Balanced Option (Growth) and the black line shows the 1 year rolling returns of the benchmark, CRISIL Balanced Fund Index.
We can see that Reliance Regular Savings Fund Balanced Option has outperformed the benchmark for most periods since inception.
In terms of portfolio construction equity comprises 69% of the portfolio mix, while debt and cash comprises 24% and 7% respectively. The equity strategy of the fund managers is a prudent blend of concentration and diversification. The fund managers aim to generate significant alphas through active sector management. The fund has a large cap bias with 78% of the portfolio accounted for by large cap companies. In the small and midcap segment, the fund managers try to identify companies with significant price value gap. In terms of sector allocation of the equity portfolio, the fund has a bias for cyclical sectors. With the improvement of the macro-economic condition in India and revival of earnings growth in Indian companies cyclical stocks are likely to give good returns in the next few years. The fund is well diversified from a company concentration perspective, with the top 5 holdings accounting for 28% of the fund’s portfolio.
The fund managers do not expect to take significant cash calls. The debt portion of the portfolio has a short to medium term maturity profile, keeping in mind the interest rate outlook. 50% of the debt portfolio has maturities of less than 5 years, 23% has maturity of 5 to 7 years, 12% has maturity of 7 to 10 years and the rest has maturities of more than 10 years. The credit quality of the fund portfolio is very high with 99% of the securities rated AAA.
Risk & Return
From a risk perspective, the volatility of the fund is slightly on the higher side. The annualized standard deviations of monthly returns of the Reliance Regular Savings Fund Balanced Option for three to ten year periods are in the range of 13% to 19% respectively. However, on the basis of risk adjusted returns, as measured by Sharpe Ratio, the fund has outperformed the balanced fund category.
The fund has given 14.2% compounded annual returns since inception.
र 1 lac investment in the NFO of the fund (growth option) would have to over र 4 lacs by December 4 2015.
The chart below shows the returns of
र 5000 monthly SIP in the Reliance Regular Savings Fund Balanced Option (growth) since the inception of the fund.
The chart above shows that a monthly SIP of
र 5,000 started at the inception of the fund would have grown to over र 14.8 lacs by Dec 04 2015, while the investor would have invested in total only र 6.3 lacs.
Reliance Regular Savings Fund Balanced Option dividend option has a good dividend payout track record. The scheme also has a quarterly dividend option. The table below shows the dividend history of the fund.
We can see that Reliance Regular Savings Fund Balanced Option has paid regular dividends every year over this period. On a
र 1 lac investment in the NFO, an investor would have received dividends of nearly र 1.3 lac, if the investor opted for yearly dividends, while the value of the units also would have grown to about र 1.7 lacs.
The quarterly dividend option of the scheme has paid regularly quarterly dividends for the last 5 consecutive quarters.
Reliance Regular Savings Fund Balanced Option has delivered 10 years of solid performance. Investors with moderate risk profiles may consider this product for their retirement planning and other long term financial objectives, through systematic investment plans or lump sum route. Given its good dividend pay-out track record, investors who prefer dividends can invest in the dividend plan of the Reliance Regular Savings Fund Balanced Option. Investors should consult with their financial advisors, if this scheme is suitable for their financial planning objectives.