Growth in Principal Balanced Fund (the silent performer)

Growth in Principal Balanced Fund (the silent performer)

Feb 28, 2018

Financial advisors and investors have a tendency to invest in mutual funds which are more popular. However there are many other funds which are not as popular as others but are good performers. Looking beyond the popular funds and researching on the other funds available provides many options to invest and get good returns on the investment. Principal Balanced Fund is one such fund which has been a silent performer, providing goof and consistent returns on the investments made into this fund.

What are Balanced Funds?

Balanced funds are categorized as hybrid equity oriented funds. These funds enjoy an equity allocation of minimum 65%. There are benefits that a balanced fund provides, which include:

  • A balanced fund provides benefits in equity taxation, wherein the long term capital gains received by investing in funds of more than one year would not attract any tax.
  • Even the dividends which are paid out are tax free.
  • These funds provide a balanced benefit of generating higher returns on investment as well as being less volatile when compared to most of the equity funds. The investment in longer term provides scope for higher returns while debt allocation keeps the volatility under check

Principal Balanced Fund

Principal Balanced Fund has been a consistent performer outperforming many of the other funds in the balanced fund category. The returns have been consistently higher than the average performance of the Balanced Funds. Principal Balanced Fund was started with an aim to provide longer term appreciation of the investment as well as provide current income by investing in a portfolio which includes equity; equity related securities and fixed income securities. The fund was launched on January 14, 2000 as a Hybrid Balanced Open ended Fund with a Growth option.

Since the launch of the fund, it has been a consistently high performing fund with higher returns than the average returns of the rest of the Balanced Funds category.

Source: Swaraj Wealth Research

As the data indicates, the one year return of Principal Balanced Fund is 34.53 % which is way higher than the returns of the Balanced Fund category which provided an average return of 21.15. This performance is not a recent performance but has been a consistent performer over a period of time. The three year average return of the fund is 15.78%, which is higher than the 3 year average of the category, which is at 9.7%. Principal Balance fund growth has been a good option for longer term investment with the five year average return on investment being 17.79 %, higher than the category’s average of 14.64 %. While the 10 year average of 9.58 % is slightly higher than the equity oriented Balanced Fund category’s 9.09. %. The rate of return since inception (12.09) is less than the industry (13.9), but with the recent higher performances even this figure is likely to enhance after a few years.

Source: Swaraj Wealth Research

The rolling returns over a three year time period also show a consistent pattern of higher returns. Rolling returns are the best indicator to measure the performance of a mutual fund. For the three year period between 16th Jan 2015 – 16th Jan 2018, the rate of return is 15.53% which is higher than the other equity funds average of 12.39%. The higher performance is not due to any spike in one of the years, but as evident from the graph it has been a consistent high performance indicating stability over a longer period of time.

Therefore, Principal Balanced Fund has been a consistent performer and is projected to be on the upward swing. Although it is not one of the more popular funds, the consistent performances indicate effective equity management, making it an ideal option to invest in.

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