What went wrong with HDFC Balanced Advantage Fund


HDFC Balanced Advantage fund, a dynamic asset allocation fund from HDFC mutual fund is one of the oldest mutual fund schemes in India being launched in February 1994.

It also holds the distinction for being the largest equity fund in terms of Assets under Management (AUM).

After SEBI’s recategorization exercise in 2018, HDFC Balanced Advantage Fund was born out of the merger of HDFC Prudence Fund and HDFC Growth Fund. 

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How is Hdfc balanced advantage growth?

HDFC Balanced Advantage fund is a Dynamic asset allocation fund.

It is the largest equity fund in terms of AUM.

To qualify as an equity fund, HDFC Balanced Advantage Fund needs to stay invested 65% minimum in equities at all times.

  1. Equity here includes arbitrage positions too and not just equity.
  2. This is because equity funds have a more attractive tax system as compared to debt funds.
  3. Besides equity funds, HDFC balanced advantage fund can also invest in debt, securities, cash and cash equivalents.

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History of HDFC Balanced Advantage Fund

As mentioned earlier, HDFC Balanced Advantage Fund was born out of the merger of HDFC Prudence Fund and HDFC Growth Fund in 2018 due to SEBI’s recategorization exercise.

HDFC Growth Fund was a large cap fund whereas HDFC Prudence Fund was a balanced fund.

There used to be a HDFC Balanced Fund too but it was renamed as HDFC Hybrid Equity Fund.

HDFC Hybrid Equity Fund is an aggressive hybrid fund meaning it has to stay invested in equity minimum 65% and maximum 80% at all times.

Unlike HDFC Balanced Advantage Fund, HDFC Hybrid Fund cannot go above 80% in its equity allocation.

Additional reading: Click Here to read why you should NOT invest purely on past mutual fund returns


What happened to Hdfc balanced fund?

HDFC Balanced fund was once upon a time the go to fund for investors from varying categories and goals, be it a first-time investor or a retired senior citizen.

This was more so the case prior to SEBI’s recategorization exercise in 2018.

Ever since then, the performance of this fund has been on a downward spiral.

Here’s what went wrong with HDFC Balanced Fund:


HDFC Balanced Advantage Fund Equity Allocation

The idea behind a dynamic asset allocation fund is to give the fund manager the freedom to move in and out of equities based upon prevailing market scenarios.

This therefore does not require the investor to act and leaves that job to the expertise of the fund manager.

If the fund manager believes markets are overvalued then he would cut down on equities and raise allocations in debt and cash.

This would help the fund face any impending market correction with minimum damage.

In a similar vein, once the markets show signs of recovery, the fund manager would then again be able to increase the allocation to equities and cut down on debt and cash.

This would help him buy companies at attractive prices and participate in the recovery rally.

This was not the case with this fund though

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As can be observed in the above image, the fund more or less positioned anywhere between 78 to 82% in equities even when the markets were volatile.

It did not cut down its equity portion to manage volatility better, in fact many multicap funds had far less exposure to equities during the same period as compared to HDFC Balanced Advantage fund.


HDFC Balanced Advantage Fund Portfolio allocation

The fund has more or less stuck to underperforming sectors in the past couple of months.

The issue is not just the sector but also the allocation to the sector that HDFC Balanced Advantage has allocated.

Every equity mutual fund will go through ups and downs, that’s a given.

There will be certain bets that may not pay off and certain bets would be cyclical in nature which would require a longer time horizon.

This works fine in pure equity mutual funds but not exactly with dynamic asset allocation funds.

This is because with HDFC Balanced Advantage Fund, a dynamic asset allocation, investors would usually be investing with a lower time horizon as compared to other equity funds and at the same time expect it be less volatile. 

HDFC Balanced Advantage Fund Strategy

The fund has a tendency to stick with underperforming sectors and companies, irrespective of how long it takes for these companies and sectors to recover.

The fund also has a sense of value style to its investing strategy.

For eg in 2019-2020 the fund continued to stick with its higher exposure to PSU companies despite them under performing for a prolonged period.

This would work smoothly with any other equity fund but not so much with a balanced advantage fund.

Investors need to be aware of this when even considering this fund because this fund functions more like a value fund with a multicap fund allocation.

This can be easily figured out by analysing the sector and equity allocation for a number of quarters for this fund.

The fund manager is very conscious of valuations and this reflects in his pickings too, there is willingness to put up with prolonged period of underperformance due to long term belief.

Are you investing in the right mutual funds?

Hdfc balanced advantage fund monthly dividend

HDFC Balanced advantage fund was aggressively advertised as a fund that could provide dividends which could be seen as a monthly source of income.

Additional reading: Click Here to read why you should NOT invest in Dividend mutual funds.

This explains why the fund has accumulated such a large corpus because attributing it to completely past returns would not project the real picture.

This also explains why middle-aged citizens and senior citizens took more of a liking to this fund as compared to other equity funds.

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HDFC Balanced Advantage Fund Dividend History


Senior citizens viewed this fund as a good source of monthly dividend that would take care of their monthly expenses in their retirement years.

In reality though, dividend from mutual funds are not guaranteed just like with scrips too.

Also with mutual funds, dividends were being paid out of their own capital too.

Meaning you were getting your own capital back in the form of ‘profits’ for which you were paying tax.

In order to rectify this, The regulator SEBI, has declared that from 1st April 2020 onwards dividend plans of mutual funds would be renamed as follows:

  1. Dividend pay-out plan would be renamed as ‘Pay-out of Income Distribution cum capital withdrawal option’
  2. Dividend reinvestment plan would be renamed as ‘Reinvestment of Income Distribution cum capital withdrawal option’.
  3. Dividend transfer plan would be renamed as ‘Transfer of Income Distribution cum capital withdrawal option’.

This name change has been necessitated because so far investors were under the belief that dividends received by them were a part of their profits when in fact, they were also a part of their capital too.



HDFC Balanced Advantage Fund even though is in the dynamic asset allocation category, is run more like an aggressive hybrid fund.

Ideally with dynamic asset allocation funds you would assume you can invest with a 3 year time horizon but with this fund you would need to assume a longer time horizon.

The fund is more volatile as compared to its peers, stability is not its strongest suit.

The fund is not your solution for a retirement fund, dividend from mutual funds is highly unrecommended and instead it’s better to go with SWP that is better for your capital too.


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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
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