What now for HDFC Prudence and HDFC Balanced Investors?!

Published: April 26, 2018 at 5:16 pm

Last Updated on January 13, 2019

HDFC Prudence and HDFC Balanced had swelled up to such AUM levels that whatever the AMC did to comply with SEBIs categorization rules, disruption was inevitable and it is indeed the case. In what was a baffling development (to me), 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). HDFC Premier Multi-Cap Fund will be called HDFC Hybrid Equity Fund and HDFC Balanced will be merged into this new fund (hybrid equity). A discussion on what should investors do now.

What is baffling is that in the announcement, HDFC has not compared HDFC balanced or prudence with the old scheme. Perhaps this is deliberate to avoid panic but at the same also irresponsible, considering the huge AUM at stake. It is a bit like merging a mall with a roadside shop and comparing the new entity with the roadside shop and ignoring the mall. The analogy does not make sense, so does what HDFC has done.

Use this mnemonic to remember:  HDFC Balanced is (now) a hybrid fund. Prudence (now) has Balanced Advantage.

For HDFC Balanced Investors

The old asset allocation as per scheme document: Equity 60% with a 20% deviation (it has always been an equity fund) and the rest in bonds (30% deviation). HDFC Hybrid Equity Fund now has an equity allocation that can swing bet 65-80% with rest in bonds and the irritating new sidekick REITs. So it is clear that the new fund will also be an equity-oriented balanced fund.


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 is a clear indication that the investment strategy (to beat the benchmark) will not be much different.

Expected new risk profile: I expect it to be similar to the old fund.

Expected return profile: because of the above, should be similar.

Hold or Exit? Hold and invest more. Plumbline status: Intact, may add one more fund in this category. Plumbline is my list of hand-picked funds.

Please note, balanced funds are only a touch less risky than equity funds. They are suitable only for long-term goals.

For HDFC Prudence Investors

The old asset allocation could vary equity fro 40-75% (but it always remained an equity fund, at least after HDFC acquired it). The new fund – HDFC Balanced Advantage Fund can have 0-100% equity. So the fund has completely changed character on paper. This cannot be refuted. So what on Earth does “balanced advantage” mean?

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.

I have no idea what that means and I believe it is irresponsible to write such vague statements when such AUM is at stake.

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.

Expected new risk profile: lower than before.

Expected return profile: because of the above, lower than before

Hold or Exit? If you are close to your goals or have achieved enough for your goals, you can afford to hold or even invest more (as per your need). If your goals are far away then I think it would be better to exit. Why? Because this fund may not return as much as you expect and therefore it is better to exit now than later. If you have retired and hold this fund, then continue.

If you decide to hold and/or invest more: when you redeem if the average last 12-month equity holding is less than 65% then it will be classified as a debt fund by the taxman. Read more: Should I pay tax if my “equity” mutual fund holds less than 65% of equity?

Let me know if you have any comments or queries.

When ICICI Dynamic became ICICI multi-asset I had suggested that investors hang on as that is not a big change. Prudence to Balanced Advantage is a big change (on paper)

Disclosure: Am an investor in both HDFC prudence and HDFC balanced. Will remain invested in both as hdfc balanced is for my retirement and prudence for my kids education. That goal is comfortably placed so can afford the lower risk.

Do share if you found this useful

We now publish both equity fund and debt fund (+ hybrid fund) screeners each month!
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 415 investors and advisors use this!
Unlock the secrets of successful financial advisors and entrepreneurs with our new course!
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Join our courses in exclusive Facebook Groups!

  • 550+ 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 who wants 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 and building a community that trusts you and pays you!
  • Goal-based portfolio management! Join 2220+ 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 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.

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 .every month.
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 money management topics. 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 based on 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 paid articles, promotions, 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 correct 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 a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth 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