If Alliance '95 is excluded, the open-end balanced funds grew by an average 13.43 per cent.

The second best fund in the balanced category, JM Balanced (dividend) grew by 25.64 per cent. Even amongst the open-end growth funds, the top performer was Bluechip with an appreciation of 57.10 per cent. Ironically, the performance of Alliance '95 has also been the reason for the sharp erosion in its unit capital during the previous fiscal.

While the net asset value of the scheme climbed from a low of Rs 9.78 to Rs 15.87, the unit capital of Alliance fell from Rs 35.82 crore on March 31, 1997 to Rs 22.98 crore on March 31, 1998. This translates into a drop of 35.85 per cent in unit capital in a year while NAV grew by 62.10 per cent. Since its launch when the initial collectionwas Rs 71 crore, the unit capital of Alliance '95 is down by 67.63 per cent. During the first two years, the outflow from the fund was on account of non-performance while in 1997-98, the redemption is attributed to its performance. In fact, the outflow should not come as a surprise since the initial investor seized the opportunity after more than two years of indifferent returns.

Alliance '95 seeks long term capital appreciation and current income. The income is to be achieved through investment in debt instruments, which will provide earnings in form of interest of which 90 per cent will be distributed annually as dividends under the dividend plan. Dividend declared will be re-invested in the growth plan. The equity component will take care of the growth objective. Under normal conditions, approximately 60 per cent of its assets will be invested in equities and related instruments and the balance in fixed-income securities, cash and cash equivalent. The fund can invest upto 10 per cent of assets inunlisted equities and related securities. Alliance '95 has a 70.65 per cent exposure in equities.

The fund manager at Alliance follows a sectoral investment strategy while picking stocks. Three sectors - Infotech, consumer non-durables and pharmaceuticals account for over 65 per cent of the equity exposure.

Infotech has been the driving force behind the fund's performance in 1997-98. Although the fund had divested heavily from Infosys, Mastek, Satyam and Digital in the recent past, it has built position in BFL Software and Tata Infotech. Infotech continues to be the most dominant sector, accounting for almost 29 per cent of the equity exposure.

In consumer non-durables, the fund has increased exposure in Pond's, Hindustan Lever and Bata while including Nestle during the quarter ending March 31, 1998. Among the pharmaceutical stocks, while the fund has divested from Knoll Pharma, it has increased exposure in Pfizer.

Unlike most balanced funds, Alliance '95 had been more or less diligent with its debtexposure and has maintained around 30 per cent exposure. It is only in the recent past that there has been a sharp decline in its debt exposure. As on March 31, 1998 the debt exposure is down to 23.62 per cent of total net assets from 37.69 per cent in December 1996. It seems that a large portion of the redemption has been financed by liquidating fixed income securities.

The debt investment is down to Rs 8.61 crore from Rs 13.41 crore in December, 1996. It might be recalled that US '64, a balanced fund from UTI, lost its way in the early 1990s when the fund managers went overboard with their equity investments. The only factor which could make a vital difference is that while US '64 was overflowing with funds, Alliance is combating redemptions.

While Alliance '95 has maintained its stellar performance in the first quarter of 1998, the future looks uncertain. The fund has now deviated from its stated objective of being a balanced fund. While the fund might just repeat its 1997-98 performance if equities dowell, the fund is likely to be volatile in the absence of debt cushion. The fund manager's propensity to divest fixed income securities will only compound volatility. Conservative investors should divest and fresh commitments avoided for the time being.

-- Value Research