HDFC Balanced Advantage Fund: Still a fantastic performer!

Published: January 13, 2019 at 11:26 am

Last Updated on September 12, 2020

This is a performance review of HDFC Balanced Advantage Fund, previously HDFC Prudence Fund. Does it still make sense to consider this fund or continue investing in it? Let us find out by comparing it with Nifty 50 and HDFC Hybrid Equity (Balanced) fund.

This fund has had a colorful history  The fund was launched in Feb 1994 as Centurion Prudence Fund by Twentieth Century Asset Management. Zurich India Asset Management then acquired it in 1999 and HDFC Asset Management in 2003 after which Prashant Jan started managing it. This is the NAV of the fund since inception and a comparison from May 2001 with Nifty 50 Total Returns Index.

HDFC Balanced Advantage Fund (HDFC Prudence) since incpetion NAV growth

HDFC Balanced Advantage vs Nifty 50 Total returns


In April 2018, to comply with SEBI categorization rules, HDFC announced that HDFC Growth Fund will be called HDFC Balanced Advantage Fund and that HDFC prudence will be merged into this new fund (balanced advantage).

Not only was this move baffling, as mentioned earlier in, what now for HDFC Prudence and HDFC Balanced Investors, the new investment strategy of HDFC Balanced Advantage is as vague as it can get!

  • Old Asset Allocation: 40-75% (although it remained an equity fund after the 65% min requirement ruling by SEBI)
  • New asset allocation:  0 -100% (it will still remain an equity fund as it has a huge AUM)
  • Old benchmark:   Crisil Balanced Fund Aggressive Index Nifty 50 index – 65% + CRISIL Composite Bond Fund Index – 35%
  • New benchmark: NIFTY 50 Hybrid Composite Debt 65:35 Index. This possibly means that it will remain equity oriented at least most of the time.

HDFC offers a vague definition of “balanced advantage”. In the fact, the whole scheme document of this fund is vague.

The fund manager will determine asset allocation between equity and debt depending on prevailing market and economic conditions. The debt-equity mix at any point of time will be a function of interest rates, equity valuations, medium to long term outlook of the asset classes and risk management etc.

HDFC Balanced Advantage Fund vs Nifty 50 TRI

HDFC mutual fund offers adjusted NAV for both Balanced advantage and Hybrid Equity in its website. This is a contiguous NAV history across the fund mergers mentioned above. I have used the same for this analysis.

Disclosure: As mentioned in my 2018 personal finance audit, I am an investor in both HDFC balanced advantage and Hybrid Equity.

Three years rolling returns

Let us kick things off with the 3Y rolling returns history.

3 year rolling returns of HDFC Balanced Advantage vs Nifty 50What you see above is 3963 3Y return data points in each line from May 2001. That is pretty awesome for a fund that have never had a full equity portfolio. Its recent performance is still quite good.

Next, using the Equity Mutual Fund Rolling Upside/Downside Capture Calculator (this is the tool that set the foundation for the monthly screeners), we can view the downside capture and upside capture with time.

The downside capture tells you how much NIfty 50 losses has the fund captured. If downside capture = 100% it is as “lossy” as NIfty 50. If it is 110%, then it has captured 10% more loss! If is 90%, it has captured 10% less loss. So lower the downside capture the better.

So if we reverse the argument of the above para,  higher the upside capture, the better as this means the fund has gained more when the index gained.

Three years rolling downside and upside capture

downside capture and upside capture of HDFC balanced advantage fund

In the early 2000s, the fund gained a reputation as being more aggressive than most balanced funds with a high upside and downside capture. However, recently it has mellowed considerably with low downside and low upside capture. The capture ratio is upside by downside and >1 is considered as “good”.

Five years rolling returns

5 year rolling returns of HDFC Balanced Advantage vs Nifty 50Again that is awesome (3233, 5Y data points)!

HDFC Balanced Advantage Fund vs HDFC Hybrid Equity

I have reviewed HDFC Hybrid Equity Fund (HDFC Balanced) earlier, and it is a pretty good fund to hold. Amusingly, HDFC MF has clarified that its balanced advantage fund is more volatile than its aggressive hybrid fund!!

HDFC mtual fund risk vs reward profile of hybrid schemes

Investors should understand this before comparing or investing.

Five years rolling returns

So now we compare: HDFC Balanced Advantage vs HDFC hybrid vs NIfty 50 vs Nifty 100 vs Nifty 200

five year rolling returns comparison of HDFC balanced advantage fund with HDFC Hybrid equity

The no of data point as shown above is 3233 for the HDFC funds.

Five years rolling volatility

This is the rolling volatility or standard deviation for the above data set.

Rolling standard deviation or volatility for HDFC Balanced advantage and hdfc hybrid

Observations from the above

  1. HDFC Balanced Advantage has outperformed Nifty 50 at significantly lower risk
  2. HDFC Hybrid has recently outperformed Balanced Advantage at lower risk!

Summary and conclusions

There can be no doubt that HDFC Balanced Advantage is still a compelling pick and existing investors should certainly continue to hold and invest more in it. So can new investors but they do have less volatile choices in HDFC Hybrid Equity and ICICI Prudential Equity & Debt Fund (ICICI Balanced)

My only grouse is the product position. HDFC Prudence should have been called the aggressive hybrid fund as it is one and HDFC Balanced the balanced advantage. Also, the lack of clarity in the asset allocation pattern is annoying. I would prefer a balanced advantage fund with a clear tactical asset allocation strategy and a much lower risk. ICICI Prudential Balanced Advantage Fund has scored in this count with performance & Low Volatility. Although it offers lower reward than both HDFC funds, it will work well for important goals or for post-retirement investing.

I was asked why I hold Balanced Advantage when it is more volatile than Hybrid Equity. Two reasons: (1) they are used for different goals and (2) the volatility different is not that high to make a big deal about

 

Do share if you found this useful

For a short of time, enjoy a 40% discount on our online course: Goal-based portfolio management! Join 1863 members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment of Rs. 3000 Rs. 1800 only. No recurring fees! Life-long access to videos (10+ hours content)  in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Did you know? We have more than 900+ videos on YouTube to explore! Join our YouTube Community!

Use our Robo-advisory Excel Template for a start-to-finish financial plan!

Join our courses in exclusive Facebook Groups!

  • 520+ members are now part of our new course, How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner wanting more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills, building a community that trusts you and pays you!

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners on a monthly basis
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps