HDFC Balanced Advantage Fund: Balancing Risks and Returns
Aug 01, 2019

Author: Divya Grover

(Image source: Business photo created by snowing -

Stock markets go through volatile phase every now and then. At such times a dynamic asset allocation strategy could help investors tide over volatility and generate better returns. A balanced advantage fund aims to do just that.

With a long track record of over 25 years and an AUM of over Rs 43,000 crore, HDFC Balanced Advantage Fund (erstwhile HDFC Prudence Fund) is one of the most popular funds in the Balanced Advantage Funds category.

As per SEBI mandates, balanced advantage funds can manage their allocation in equity and debt dynamically. While the equity component helps in appreciation of wealth, the debt component intends to provide an element of stability to the portfolio.

Even though the fund now has the flexibility of dynamic asset allocation with effect from June 2018, its allocation strategy remains similar to its former category.

Mr Prashant Jain has been the manager of the scheme since inception, along with Mr Amar Kalkrundikar (Overseas investments) since January 10, 2019.

In this brief analysis, we take a close look at the features and performance of HDFC Balance Advantage Fund.

Investment objective of HDFC Balanced Advantage Fund

The investment objective of the scheme is to provide long-term capital appreciation/income from a dynamic mix of equity and debt investments.

Table 1: Fund Facts HDFC Balanced Advantage Fund

Category Balanced Advantage Fund Style Growth
Type Open ended Market Cap Bias Large cap
Launch Date 01-Feb-1994 SI Return (CAGR) 18.25%
Corpus (Cr) Rs 43,168 Min. /Add. Inv. Rs 5,000 / Rs 1,000
Expense Ratio (Dir/Reg) 1.19% / 1.59% Exit Load 1%
Portfolio Data as on June 30, 2019.
SI Return as on July 31, 2019.
(Source: ACE MF)

Graph 1: Growth Of Rs 10,000, If Invested In HDFC Balanced Advantage Fund 5 Years Ago

Top 10 ETFs on the basis of 5-year returns
Data as on July 31, 2019
(Source: ACE MF)

Had you invested Rs 10,000 in HDFC Balanced Advantage Fund five years back on July 31, 2014, it would have grown to Rs 16,753. This translates into compounded annualised growth rate of 10.87%.

In comparison a simultaneous investment of Rs 10,000 in CRISIL Hybrid 35+65 - Aggressive Index would now be worth Rs 15,871 (a CAGR of 9.68%). As can be seen in the chart above, the fund was able to generate alpha over CRISIL Hybrid 35+65 - Aggressive Index from 2017 onwards and it still continues, while it lagged in the year 2015-16. In the remaining years its performance was nearly in line with the index.

Graph 2: HDFC Balanced Advantage Fund: Year-on-Year Performance

Top 10 ETFs on the basis of 5-year returns
YTD as on July 31, 2019
(Source: ACE MF)

Launched in the year 1994, HDFC Balanced Advantage Fund has a track record of over 25 years. The year-on-year performance comparison of the scheme vis-a-vis CRISIL Hybrid 35+65 Aggressive Index shows that the fund has outperformed the index in 4 out of last 8 calendar years. It managed to generate alpha in CY 2012, 2014, 2016 and 2017, with the majority of it being during the market rally of 2014. In CY 2015 and 2018 the fund gave negative returns even as the index generated positive returns. It also performed poorly in CY 2013 and failed to manage the downside in CY 2011.

In the current year the fund is showing slight underperformance when compared to CRISIL Hybrid 35+65 Aggressive Index.

Table 2: HDFC Balanced Advantage Fund: Performance vis-a-vis category peers

Scheme name Corpus (Cr.) 1-year (%) 2-year (%) 3-year (%) 5-year (%) Std Dev Sharpe
HDFC Balanced Advantage Fund 43,168 4.38 9.38 13.31 16.34 11.44 0.12
Reliance Balanced Advantage Fund 2,040 5.09 9.89 12.25 14.12 9.44 0.11
Aditya Birla SL Balanced Advantage Fund 2,766 4.00 7.17 12.11 12.89 6.02 0.06
ICICI Pru Balanced Advantage Fund 28,709 5.69 9.46 11.31 13.78 5.66 0.10
Edelweiss Balanced Advantage Fund 1,450 5.03 9.76 9.10 11.64 8.21 0.04
Principal Balanced Advantage Fund 214 5.27 7.37 8.54 11.64 4.08 -0.07
CRISIL Hybrid 35+65 - Aggressive Index 5.73 10.04 11.78 12.73 8.11 0.10
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
(Data as on July 31, 2019)
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

HDFC Balanced Advantage Fund underperformed CRISIL Hybrid 35+65 Aggressive Index in 1-year and 2-year rolling period. However, over 3-year and 5-year rolling return periods, the fund outperformed the index with a decent margin. It managed to beat average category returns across rolling periods, except 1-year rolling period.

In terms of risk-return parameters, the fund undertakes the highest risk as compared to category peers and index. However, its risk-adjusted return is among the best.

The fund was also the top performer on a 3-year and 5-year rolling period. The other top performers in the 3-year rolling period included Reliance Balanced Advantage Fund and Aditya Birla SL Balanced Advantage Fund.

Investment Strategy of HDFC Balanced Advantage Fund

The fund's investment objective is to provide long-term capital appreciation/income from a mix of equity and debt investments. The fund manager determines asset allocation between equity and debt depending on prevailing market and economic conditions.

The aim of equity strategy is to build a portfolio of companies diversified across major industries, economic sectors and market capitalisations that offer an acceptable risk-reward balance.

Investment in debt securities is guided by credit quality, liquidity, interest rates and their outlook.

The debt-equity mix at any point of time is a function of interest rates, equity valuations, medium to long-term outlook of asset classes and risk management etc.

Graph 3: HDFC Balanced Advantage Fund Portfolio Allocation And Market Capitalisation Trend

Top 10 ETFs on the basis of 5-year returns
Holdings (in %) as on June 30, 2019
(Source: ACE MF)

The fund has the flexibility to dynamically manage equity and debt mix. It however, prefers to keep an equity bias. HDFC Balanced Advantage Fund holds 75-85% of its portfolio in equities. The exposure to large-caps is in the range of 60-70%, while the allocation towards mid and small-caps is 5-10% each. The fund maintains 15-25% of its portfolio in cash and debt instruments.

Graph 4: HDFC Balanced Advantage Fund Top Portfolio Holdings

Holdings (in %) as on June 30, 2019
(Source: ACE MF)

Being a large sized fund, HDFC Balanced Advantage Fund has 67 stocks in its portfolio diversified across various sectors. The top 10 stocks constitute 52.2% holding of the portfolio. State Bank of India has the highest allocation at 9.8% followed by ICICI Bank with an allocation of 9.4%. Infosys (7.8%) and Larsen & Toubro (7%) follow closely behind. The other stocks in the top 10 portfolio have an allocation of 2-4%, each.

In terms of sector wise holdings, a quarter of the fund's portfolio is exposed to Bank. This is followed by Infotech, Engineering and Power with an allocation of around 9% each. Petroleum products are the next in the list with an exposure of 6%.

Investments in debt securities predominantly include corporate debts of banks having moderate to high credit ratings.

Top Contributors

Among the stocks in the portfolio, ICICI Bank contributed the most to gains of the portfolio in the last one year with a portfolio return of 3.4%. State Bank of India and Larsen & Toubro were the other top contributors adding 1.8% and 1.2%, respectively to the funds return.

The stocks that eroded portfolio gains the most were GAIL (India), Vedanta, Vijaya Bank, Bank of Baroda and Apollo Tyres.

Suitability of HDFC Balanced Advantage Fund

HDFC Balance Advantage Fund is suitable for investors looking for capital appreciation along with some amount of stability by investing in a mix of equity and debt. The fund maintains an equity allocation of over 65% to be qualified as an equity scheme.

The scheme has a large-cap bias, but it also looks for opportunities in the small and mid-cap space. Debt investments are mainly in top quality corporate debts to reduce credit risk. Thus, the fund carries moderately high risk and suitable for an investment horizon of 3 years or more.

The fund has one of the largest asset sizes and this can hamper its agility. However, it has an able fund manager at helm who has been managing such a strategy for more than 25 years.

Though the fund's performance in shorter time horizon has not been impressive enough, it has rewarded investors over longer time periods.

The scheme is well-diversified across sectors which can help in reducing the volatility and the risk involved. However, one should weigh all the options and make a prudent choice while investing in mutual funds.

Note: This write up is for information purpose and not a recommendation to buy or sell the mutual fund scheme. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have recently identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2019'. Do not miss our latest research finding. Get your access to this exclusive report, right here!


About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

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Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. Rahul Goel;

  12. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, Nariman Point, Mumbai 400 021. Website: Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

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Aug 05, 2019

very good analysis.Kindly continue to write such analysis in the interest of investor.

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