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Aarati Krishnan

UNIT Scheme 1995, the balanced fund from the Unit Trust of India, has notched up a good track record in the past five years. Regular dividend payouts, coupled with frequent juggling of its equity-debt mix, have helped the fund generate a compounded annual return of around 19 per cent over the past five years.

The fund has also made considerable progress in weeding non-performing debt securities from its portfolio. Therefore, existing investors in the fund may hold on to their investment.

However, the fund has followed a fluid asset allocation strategy over the past three-four years, that may make it difficult for investors to assess how exactly the fund fits in with their risk preferences. The splitting of UTI into separate asset management companies has resulted in a restructuring of the fund management at all of the schemes at UTI-II, including US-95. Therefore, investors may wait for the fund to complete at least a year under the new dispensation before investing in it.

Suitability: Unlike some balanced funds that stick with one particular equity-debt mix, irrespective of market conditions, US-95 appears to follow a dynamic asset allocation strategy. The fund itself is structured in such a way that both the equity and debt portions of the portfolio can swing between 40 and 60 per cent.

But on a few occasions over the past three years, the fund's asset allocation has actually strayed outside this band. Equity exposures were as low as 37 per cent of the assets in December 2001, but climbed to 65 per cent by June 2002, before falling to less than 60 per cent in 2003.

The dynamic asset allocation strategy may perk up returns for investors if the fund manager calls the direction of the equity and debt markets right. But it does multiply the number of calls that he has to make. The fund has a higher risk profile than would be the case with a plain vanilla balanced fund, with a pre-determined equity-debt mix.

Performance: In terms of its performance over the past five years, the fund ranks among the top five balanced funds. The fund's long-term track record has been helped to an extent by its regular and generous dividend payouts. This has helped protect a part of the generated returns, especially in falling markets.

Exposures to a few long-dated corporate debentures (probably acquired in the mid-1990s) with high coupon rates appear to have perked up returns from the debt portion of the portfolio.

The debt portion, incidentally, is invested mainly in triple and double A-rated corporate debentures with a marginal exposure to gilts. The proportion of lower rated debentures has been reduced through NPA-provisioning.

The equity portion has been actively churned. The fund appears to have booked profits on a number of small-mid cap stocks in end-2002 and shifted towards more large-cap liquid stocks in the first quarter of 2003.

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