Choosing between debt and equity can be difficult at times. Hybrid funds, also known as balanced funds, can act as a solution to this problem. One such fund is the HDFC Balanced Fund.

Balanced funds invest in different types of asset classes. They allow you to invest in a mix of equity and debt. Hybrid funds invest in different proportions of various asset classes to provide optimized diversification and minimize risks.

Different types of hybrid funds:

  • Balanced funds
  • Monthly income plans
  • Arbitrage funds

Equity oriented hybrid mutual funds invest at least 65% of the corpus in equity, while the rest is invested in debt instruments.

The objective of these funds is to offer investors the best of both worlds, equity and debt. Balanced funds are able do well even when stock markets are going through a difficult phase as they have a cushion of debt. They provide a balance of growth and safety.

Balanced funds have low volatility risk and high diversification. These funds are hassle free.

The fund managers for equity and debt are different. The equity part is managed more actively with exposure to companies across different sectors and market capitalization categories. Whereas, the debt part is managed comparatively passively.

The sole disadvantage of these funds is that the investor does not have any power for deciding the equity-debt mix. This mix is usually decided by the mutual fund house or law.

HDFC Balanced Fund Performance

HDFC Balanced Fund is ranked number 2 in balanced funds category by Crisil.

HDFC Balanced Fund is one of the best balanced funds in the country. This fund has consistently outperformed the average returns of its peer funds in the same category.

It has been beating its benchmark consistently over 1, 3, 5 and 10 year periods. The fund has an annualized return of 15.05% over the past one year.

Min SIP 500
Turnover 41%
Fund Category Hybrid equity oriented
Risk Level Below average

HDFC balanced fund invests more than 66% in equity and around 32% in debt instruments. The equity side is biased towards medium and small sized companies. So, most of the equity investment is in mid cap and small cap companies.

Portfolio

Stock Allocations:
HDFC balanced fund has divided its investment in the following manner:

Equity

  • Large Cap Companies- 34.56%
  • Mid Cap Companies- 38.87%
  • Small Cap Companies- 24.27%

Debt

  • The debt portion is allocated to corporate debentures and government securities.
  • Around 1% of its assets are in cash and equivalents like money market instruments.
  • The stock holds 65 stocks currently and assets worth Rs.18,027 crores.
  • It has invested in the following sectors:

Finance, energy, technology, FMCG, automobile, construction, metals, healthcare, engineering, services, chemicals, durables and communication.

  • Some of its top equity holdings include:
Holding Sector
Infosys Technology
ITC FMCG
Larsen & Turbo Construction
ICICI Bank Financial
Bharti Airtel Communication
KEC International Engineering
Balkrishna Inds. Automobile
Indian Hotels Services
Reliance Industries Energy

Should you invest in HDFC Balanced Fund?

HDFC Balanced Fund is suitable for investors with short term needs, that is, those investors who are looking for an investment platform for 3 to 5 years of time period.

This fund can be invested in to fulfil needs like marriage, children’s education, home purchase, etc. It is not suitable for long term needs and wealth creation.

Pros of HDFC Balanced Fund:

  • Excellent fund manager
  • Good fund size
  • Performance consistency
  • Low expense ratio

How much to invest?

Minimum one time investment for HDFC balanced fund is Rs.5000 and minimum SIP is Rs.500 per month. An investor should invest in this fund to achieve short term goals as this fund is consistent in performance and returns.

What all charges are applicable?

  • Entry: A one time fee of Rs.100 is charged on investments over Rs.10,000. An additional Rs.50 are deducted for KYC if it’s a first time investor.
  • Exit: For units in excess of 15% of the investment, 1% is charged for redemption within 365 days. Expense ratio of this fund is 1.96%. This is deducted from the investor’s total returns.

When to enter?

The right time to enter the market is the job of the fund manager. The investor just needs to decide the fund and amount he wants to invest.

When to exit?

An investor can withdraw anytime he feels like doing so. You should withdraw when you feel you are close to achieving your goals.

What are the tax implications?        

Returns on HDFC Balanced fund are fully exempt from tax if kept for a minimum of one year. Redemption before completion of 1 year would lead to 15% tax on returns.

Happy investing!

Disclaimer: the views expressed here are those of the author. Mutual funds are subject to market risks. Please read the offer document before investing.