Selecting Balanced Funds for the Portfolio

Mastering Mutual Fund Investment: Part 3 of 3 Creating a Diversified Portfolio of Mutual Funds
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Transcript

Hello, welcome back. So far we have seen how we can select equity funds dead funds and index funds in our portfolio. Now let us see how to select balanced funds for our portfolio. Now, let's go through a strategy for selection of balanced funds. As we have done for the type of mutual funds, we start by selecting balanced funds based on recommendations from experts, newspapers, websites, etc. Then we gathered the data regarding the fundamentals of the balanced funds.

Then, we use the Sharpe ratio, we take the balanced funds which has the maximum Sharpe ratio for making a selection into our portfolio. This is because the balanced funds they have the risky equity funds as well as the lowest debt funds. So it is the variability which provides us the returns from the balanced funds. Now we know that Sharpe ratio is the reward to variability ratio. So we will The Sharpe ratio to select the balanced funds, if in case you're not aware of what the Sharpe ratio, please go through mastering Mutual Funds investment, part two of three, it is explained in that course. For the purpose of illustration, I have made a selection of five balanced funds.

These are HDFC balanced advantage fund HDFC balanced fund, I see I see a Prudential equity and debt fund lnt hybrid equity fund and SBI equity hybrid fund. Now, again, these are not any recommendations for investment This is just for the purpose of illustration. From The Economic Times website, I have gathered the figures of expected returns standard deviation and Sharpe ratio for all the five balanced funds that we have taken as an example for illustration. Now, I have arranged the five balanced funds in the descending order of their Sharpe ratios. We noticed that ICS a Prudential equity and debt fund has the highest Sharpe ratio and thus As far as strategy we will include this fund in our sample portfolio. Later be interesting that if you could find out whether all of these funds that are considered are actually balanced funds or not, you could study the investment patterns of all these funds and verify that whether they are actually balanced funds or not.

Given here are the metrics for the selected balanced fund ICS, a Prudential equity and debt fund. I have gathered these figures from Economic Times website. Thank you for listening. See you in the next lecture.

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