In the current markets, blue chip indices are near all-time highs. Bonds have rallied well in the last year, and yields have been falling for government securities.

However, recent months have seen volatility in the mid- and small-cap spaces as valuations ran ahead of fundamentals. Market regulator SEBI has expressed concerns about liquidity in the space – so much so that it has asked funds to conduct stress tests.

Indian elections are also around the corner, adding to market uncertainty.

For investors who can spare lump sums, this may be a good time to take exposure to balanced-advantage funds. Because the allocations are decided by the fund manager, taking into account factors such as valuations, macros, and interest rate movements, the entry point becomes less relevant.

The best funds from the category are also suitable for systematic transfer plans (SWPs) for those seeking to generate periodic cashflows with their invested lump sum.

HDFC Balanced Advantage is among the best in the category and has a 30-year track record of delivering consistently above-average returns over the long term. Investors can consider lump-sum investments in the fund for the medium to long term.

Veteran star performer

HDFC Balanced Advantage (HDFC Prudence Earlier) has been a robust performer over the years. There have been occasional bouts of underperformance. However, during holding periods of five or more years, the fund has been among the top few in the category.

When point-to-point returns over multiple timeframes are taken, HDFC Balanced Advantage has always delivered healthy mid-to-high teen returns. The scheme’s five-year returns are 18.5 per cent, and over 10 years, they are 17.7 per cent.

Taking five-year rolling returns from January 2013 to March 2024, the fund’s performance and consistency are quite impressive.

On a five-year rolling basis over the above-mentioned period, the fund has always delivered positive returns. Further, HDFC Balanced Advantage has given more than 10 per cent returns nearly 79 per cent of the time. It has delivered more than 12 per cent almost 65 per cent of the time over Jan 2013 to March 2024.

These figures place the fund among the best in its category in terms of robust and consistent returns.

Those who cannot invest via lump-sums can also consider SIPs in the scheme. A monthly SIP done for 10 years in the fund would have given a return (XIRR) of 17.4 per cent.

Tactical moves

The fund considers multiple factors before deciding between equity and debt. Derivatives are used to hedge the equity portion.

Allocation is decided on valuations and macroeconomic factors prevailing at any time.

Trailing twelve months’ price-to-earnings ratio (PE), earnings yield-to-g-sec yield ratio, inflation, fiscal situation, interest rates and the external environment are assessed before the equity proportion is fixed.

So, when the markets cracked in March 2020, and throughout the entire year, the fund had equity exposure (unhedged) in excess of 80 per cent. It was subsequently brought down steadily in 2021. Exposure was kept to 60-68 per cent for much of 2022 and again reduced in early 2023.

However, to ensure equity taxation, equity and related instruments are kept at 65 per cent or higher. Much of the equity portion is made up by large-cap stocks from the Nifty 100 baskets. Thus, this part is fairly stable and moderately risky.

In the debt portion, safety, liquidity, and returns are focused. There is minimal or almost no credit risk taken in the fixed income portion, as sovereign securities and highly rated (AAA) corporate bonds cut investment. The fund, however, looks to tweak the duration by taking a view on interest rates. For instance, as interest rates have neared their peak, the fund has increased the residual maturity steadily over the past 12 months to 5.77 years currently.

The February 2024 portfolio’s yield to maturity remains healthy at 7.43 per cent.

Derivatives exposure or hedged position is to the tune of 11.71 per cent of the portfolio in the recent portfolio.

Overall, HDFC Balanced Advantage is a quality fund suitable to be a part of the core part of the portfolio of an investor with conservative to moderate risk appetite.

The current market volatility can be used to invest in lump-sums. Even SIPs would work within a 5-10-year timeframe.

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