Does HDFC Balanced Advantage Fund Has the Potential to Offer Good Returns?

With the new categorization done by SEBI, many mutual funds have to change the portfolio, and a few have merged. One example of such funds is HDFC Prudence Fund and HDFC Growth Fund who got merge and become HDFC Balanced Advantage Fund. Using dynamic asset allocation, the fund has been investing in equity as well as debt instruments. The fund is new, and many investors are confused about the asset allocation of it. Therefore, the financial analysts of MySIPonline have researched on the fund and its portfolio, whose details have been provided below:

An Overview of HDFC Balanced Advantage Fund (G)

Launched in the year 2000, the fund has an AUM of Rs 37,850 Cr as on Jul 31, 2018. Its expense ratio is 2.23% as on June 30, 2018. However, the large asset size hampers the fund's agility and has worked against it. This large capital has replaced the fund from top schemes and affected its returns.

Currently, HDFC Balanced Advantage Fund is investing in 76 companies allocating 77% of its total assets in equity, out of which the top five companies are holding 34% corpus. These companies are Infosys, State Bank of India, ICICI Bank, Larsen & Toubro, and NTPC. On the basis of sector allocation, the fund has been investing significantly in financial, energy, technology, and construction sector. Other sectors followed by the fund are metals, services, chemicals, healthcare, engineering, etc.

The fund has also invested 22% in debt instruments. Choosing the high credibility and interest rate instruments, the fund is majorly investing in AA, AAA and SOV rated securities. Some part of it is also invested in cash and cash equivalents.

These different assets show that the fund is offering risk-adjusted returns to the investors who have an appetite for a moderate level of risk. The risk-reward balance of the fund offers investors returns with an approximate rate of 10-12%.

Strategies Followed by the Fund Manager of HDFC Balanced Advantage:

The fund manager, Mr Prashant Jain combines the top-down and bottom-up approach of selecting the stocks from full market capitalisation. However, he mostly invests in the large-cap companies who offer less volatile returns than that of mid and small-cap companies. He avoids the areas that are considered expensive by the market and invest in many public sector undertakings which have long-term growth perspective.

Being an equity-oriented hybrid scheme, the fund is much volatile than its peers. Mr Jain has joined the fund in June 2018 only, and earlier it was managed by Mr Srinivas Rao Ravuri. Under him, the fund has shown poor performance in the year 2013 as he has invested the amount highly in technology and healthcare companies. However, later in 2014, it has outperformed its benchmark as well as category average providing the returns of 42.85%.

As per the financial analysts of MySIPonline, HDFC Balanced Advantage Fund growth has the capability to provide good returns within five years, as it has delivered the compounded returns of 19.53% in the past five years. However, currently, the biggest challenge in the front of the fund manager is to handle the large corpus and allocate it in the best way possible.