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.
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.
- Equity here includes arbitrage positions too and not just equity.
- This is because equity funds have a more attractive tax system as compared to debt funds.
- Besides equity funds, HDFC balanced advantage fund can also invest in debt, securities, cash and cash equivalents.
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.
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:
- Dividend pay-out plan would be renamed as ‘Pay-out of Income Distribution cum capital withdrawal option’
- Dividend reinvestment plan would be renamed as ‘Reinvestment of Income Distribution cum capital withdrawal option’.
- 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.
Summary
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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