Clearing the confusion between HDFC Balanced and HDFC Balanced Advantage

By Morningstar |  22-06-18 | 

Being an investor in HDFC Balanced Fund, I have the following concerns which I would like you to throw light on:

  • It has a good track record so far and I still don't understand what is the strategy of the fund house to kill this excellent fund
  • Its expense ratio was very less than what they are now charging for the new Hybrid fund
  • The fund manager, Chirag was managing it excellently and now he has to work with an underperforming fund manager

- Ramakrishna

Should I invest in HDFC Balanced Advantage for a 3-year  horizon? Is it safe compared to a plain balanced fund? 

- Rakesh Pandey

For obvious reasons, we have attempted to answer both queries together.

  • HDFC Hybrid Equity Fund

Let’s first get the perspective on the recategorization of HDFC Balanced Fund in the current scenario. With the recent realignment of funds as per SEBI guidelines, HDFC Premier Multicap Fund has been merged with HDFC Balanced Fund and the entity thus formed is named as HDFC Hybrid Equity Fund.

The fund house has retained the features of HDFC Balanced Fund in HDFC Hybrid Equity Fund and categorised it under Aggressive Hybrid Fund. This category mandates the manager to invest between 65-80% of assets in equities and between 20-35% of assets in fixed income instruments, which is not different from the way HDFC Balanced Fund has been historically managed.

Simply put, HDFC Hybrid Equity Fund will be managed in the similar fashion as the erstwhile HDFC Balanced Fund. So, you can be rest assured, this product is not getting killed.

The fund would continue to be managed by Chirag Setalvad which should alleviate your concern on the manager part.

While the expense ratio of HDFC Hybrid Equity Fund is yet to be disclosed as the date for these changes to be effective was June 1, 2018, we believe it won’t be dramatically different from what the fund house used to charge for HDFC Balanced Fund.

  • HDFC Balanced Advantage Fund

HDFC Balanced Advantage is an amalgamation of HDFC Growth and HDFC Prudence and it has been categorized under Balanced Advantage category. Under this category, the fund has the liberty to move dynamically between equity and debt segments without any restrictions or limits.

Historically HDFC Prudence has been managed as a balanced fund with roughly 75% of allocation maintained in equities across time periods. Hypothetically, the fund manager may continue to manage HDFC Balanced Advantage in similar fashion going ahead. If that’s the case, then your investment horizon is too short to invest in this fund or for that matter any equity-oriented funds. Its prudent to invest in equity-oriented funds for an investment horizon of 5 years and beyond.

Before investing you should get an understanding of the fund’s investment strategy, how it is being managed and whether it fits your requirement. For instance, HDFC Prudence was an aggressively run balanced fund and used to court more risk than a typical category peer.

It would be wise to get the help of an investment adviser who would help you select the right fund in your portfolio based on your investment objective and risk appetite.

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Sunil Shah
Jul 1 2018 06:39 PM
There is also no clarification on whether units in Balanced Fund held for more than 12 months are sold or redeemed under SWP post 01-06-2018 after Switch, will be treated as Long Term or Short Term for Income Tax. What will be the cost of purchase in such case since the NAV was very high at the time of purchase and currently the NAV is very low after merger. How to compute the capital gain/loss. The statement received from HDFC MF only indicates switch transaction on 01-06-2018 at the current NAV.
Jun 30 2018 08:54 AM
There is no proper clarification from the Fund house. Whether Fund house will apply exit load if someone wants to exit as there was no consent obtained from the unitholder.there is a total mess in handling the issue. In the SOA, IT IS SHOWN AS SWITCH. Whether it is a switch?
Suresh Nair
Jun 29 2018 07:49 PM
By first converting Premier Multi Cap into Hybrid Equity fund and then merging Balanced fund into this new fund what has happened is that the track record of the Balanced Fund has been totally obliterated and the new fund will display the track record of the Premier Multi Cap fund! Why was this done? Morning Star should attempt to get an explanation from HDFC AMC. HDFC Balanced fund had an excellent track record so it is quite strange as to why they did this!
Sujeet Singh
Jun 25 2018 11:52 PM
The expense ratio of HDFC Hybrid Equity fund is at least 1 per cent more than HDFC Balanced Fund which is ridiculous. The AUM is more as two funds were merged so there was no reason to increase the expense ratio this much. It would be prudent to exit this fund and invest in other balanced fund with much lesser expense ratio like ICICI Equity and Debt Fund.
Pradeep D
Jun 24 2018 12:31 AM
SEBI's realignment guideline did not ask Fund houses to merge a multicap fund with a balanced fund. There was no reason for HDFC to do that. What HDFC did was a crooked idea aimed at increasing their profits. Its time investors call the bluff on HDFC AMC and pull the money out of the HDFC funds.
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