What triggered the reduction of inflows to Balanced Funds?

Mutual fund investors have now started exiting from the balanced fund. Balanced funds have cherished investors in the last couple of years by assuring monthly dividends forming an annual yield of 8-12 per cent. But in the last couple of months since January, mutual fund investors are turning their back towards balanced funds which witnessed a reduction in flows to the category.

As per the data from AMFI, since December 2017, the inflows to balanced funds have reduced by Rs. 4,730 crore, till February 2018. In the month of January 2018, the balanced fund inflows have came down to Rs. 7,614 crore from Rs. 9,756 crore in December 2017 that saw a reduction of Rs. 2,142 crore on monthly basis. The trend continued in the next month too, where mutual fund inflows have dropped by Rs. 2,588 crore to touch at Rs. 5,026 crore (February 2018).

This was mainly driven by the recent correction in the markets and the imposition of DDT (Dividend Distribution Tax). Many investors were looking at balanced funds as a good option to earn a regular income with the dividends and with the aim to earn a regular tax-free income from the fund they have parked in the balanced funds. The introduction of DDT has hit the sentiments of these investors and tended them to exit from the funds. Apart from this, the rising bond yields also dampened the performance of the debt portion of the balanced fund which has added to worries of investors. Due to all these factors, balanced fund inflows were hampered.

With the changing dynamics of tax structure and markets, according to us balanced funds are not suitable for the aggressive or conservative investors. However, for an investor with a moderate risk, who can afford to take more risk than debt funds but aims to limit equity exposure, balanced funds still stands as a good option for the investment.