Three funds for double-digit returns (Article from Business line published on 17th January 2015)

Three funds for double-digit returns(Article from Business line published on 17th January 2015)Presented byVishnu Sankar S

Advisors usually tell investors that if they want to enjoy double-digit returns, they should take the wild swings of the stock market in their stride.But given that equity and balanced funds have suffered 40-50 per cent losses in bear markets such as 2008, this is easier said than done. So, are there funds which can get you a double-digit return over three or five years, without wiping out half of your capital if the stock market tanks?

HDFC Multiple Yield Fund

Investment Objective :

The scheme aims to generate positive returns over medium time frame with low risk of capital loss, by investing primarily in fixed income securities and balance in equity and equity related instruments.

In the bear market of 2008, when the average balanced fund lost over 40 per cent in value, HDFC Multiple Yield suffered just a 3 per cent fall in its NAV.In 2010 and 2011, which were not-so-great years for debt funds, HDFC Multiple Yield still managed returns of 11 and 6 per cent, respectively. The fund has had only one down year since its launch in late 2004 a good bet for conservative investors looking for a double-digit return.

Franklin India Pension PlanInvestment Objective:

The scheme seeks to generate steady returns along with tax savings through a portfolio of upto 40% in equities with the balance invested in fixed income instruments. This is to ensure relative stability and deliver superior returns.

Though low on credit risk, the debt portion features a fairly long duration (8.5 years in end November 2014), which increases interest rate risk but may enable it to make the most of a falling rate scenario.The fund now sports a one-year return of 35 per cent, three-year return of 18 per cent and a five-year return of 12 per cent, ahead of the balanced fund category, despite a much lower risk profile. It has suffered two years of losses in the last 10 years, with a 24 per cent fall in its NAV in the bear market of 2008. Investments in the fund carry a three-year lock-in period and are eligible for section 80C tax benefits.

ICICI Pru Balanced AdvantageInvestment Objective:The scheme seeks to provide capital appreciation and income distribution to the investors by using equity derivatives strategies, arbitrage opportunities and pure equity investments.

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This fund normally invests up to 35 per cent of its portfolio in debt investments and 65 per cent in equities. But risks in the equity portfolio are contained through two strategies.

The equity portion is made up both of direct stock holdings and arbitrage bets (which yield debt-like returns). Apart from this, the fund adjusts its direct equity exposure based on whether overall market valuations are expensive or cheap. If the markets price-to-book value ratio is low (based on historical bands), the fund raises its direct stock holdings and relies less on arbitrage. If market valuations are high, direct equity is cut to 30 per cent, with the fund betting more on arbitrage opportunities.

The fund has managed one-year returns of 30 per cent, three-year returns of 24 per cent and five-year returns of 15 per cent. Returns took a wallop during the 2008 market slide, with the NAV declining 37 per cent.

But the fine-tuning of the asset allocation strategy after that has helped the fund deliver more predictable gains thereafter. The fund contained its NAV losses to less than 9 per cent in 2011, when balanced funds as a category shed 18 per cent.

This fund is more risky than either HDFC Multiple Yield or Franklin India Pension Plan, but can be a good option for investors who are looking for a lower-risk version of the balanced fund.