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HDFC Balanced Fund
Investment Objective
The scheme seeks to generate capital appreciation with current income from a combined portfolio of equity and debt instruments. Under normal circumstances the scheme would take 60 % exposure to equity instruments while the balance would be allocated to debt instruments.
Fund Managers - Chirag Setalvad since Apr 2007
Analysis
If you compare data about HDFC Balanced to the other funds in our selection here, you'll immediately realise that this one is cast in a very different mould. The basic idea behind equity-centric balanced funds is that they limit volatility by keeping part of their assets in fixed income and regularly rebalancing the portfolio. HDFC Balanced does this, with an aggressive equity part.
Unlike the 20 to 30 per cent mid-cap exposure of others', this fund flies close to the sun with at least 40 per cent that may shoot up to 50 per cent. In fact, currently, the total exposure for mid-caps and the even riskier small-cap stocks is about 68 per cent.
This emphasis on smaller companies makes for a track record that's just as good as the others in aggregate and is yet very different in its details. Over the last ten years, this fund has underperformed the category for as many as five years, and yet has ended up ranked 6 out of 23 over ten years and 2 out of 28 over the last five years.
The fund keeps the equity within a fairly narrow range. According to the fund manager, the equity exposure is maintained at about 70-72% and rebalancing is ongoing, instead of being at some fixed interval. Given the emphasis on smaller companies, the stock-selection strategy is obviously bottom-up.
However, the question is, should balanced fund investors go for this rollercoaster fund? In our opinion, while HDFC Balanced cannot be the sole choice of balanced fund, it has considerable value for a strategy that records sharp gains and then protects them by regular rebalancing into its fixed income part. Its track record speaks for itself. Here's an example, when the markets crashed in the 2008 crisis, the fund declined by 44 per cent from its peak but is now up 68 per cent above that peak. On both counts, it has done better than many good equity and balanced funds.
Volatility means that more than any other balanced fund, investors must use the SIP route for cost averaging and have a genuine long-term horizon.
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