mutual-fund

HDFC MF gradually drops its equity allocation in BAF to 57%

HDFC MF gradually drops its equity allocation in BAF to 57%

Mutual fund house, HDFC Asset Management Company, which has historically run its balanced advantage fund aggressively with unhedged equity in the 65-80% range has cut its equity steadily in 2021. After keeping it above 80% in calendar year 2021, the fund house has cut it to a multi-year low of 57%. The fund house has been using derivatives to hedge exposure, and therefore, for tax purposes, the scheme will continue to be equity. According to the fund house, as of 30 November 2021, unhedged equity exposure of the HDFC Balanced Advantage Fund was 57.1% of the total assets against 82.8% in April 2020. The fund’s equity exposure started falling from a high of 83% from August 2020 just as the market rally started gaining momentum. The BSE Sensex was trading in the range of 35,000-40,000 in August 2020. The equity exposure saw gradual decrease to below 60% in October just as the market approached the 65,000 level. The reduction in the equity exposure in the fund assumes significance as it the biggest scheme in the dynamic asset allocation category, which includes balanced advantage funds. HDFC Balanced Advantage Fund had assets under management of ₹41,319 crore as of 30 November. “The whole objective of BAFs is to manage their equity exposure dynamically but HDFC BAF had kept allocation static (65-80% equity) for many years and above 80% throughout calendar year 2020, unlike other BAFs, said Amol Joshi, founder of Plan Rupee Investment Services. In terms of performance, the scheme has delivered a return of 34.9% on a one-year basis, 13.9% on three-year basis and 11.6% on a five-year basis. Balanced advantage funds are allowed to go 0-100% in equity or in debt depending on the market conditions. Hybrid funds are favoured by investors as they seek to find a balance between growth and income by investing in both equity and debt. Balanced advantage funds have seen a sharp spike in their popularity over the past few years. This is because asset management companies (AMCs) use derivatives to reduce the effective equity exposure in them below 65% while maintaining the gross exposure at or above 65%. This ensures equity-like taxation at a lower risk level. The BAF category at a size of ₹1.65 trillion at the end of November has become the largest category among hybrid funds. The scheme category received net funds totalling ₹6,094.03 crore during the month. Despite advantages, investors should keep in mind some limitations of BAFs. Their expense ratios can be higher than what you can secure by investing in separate equity and debt mutual funds. Also, they tend to be large-cap focused on the equity side. The total expense ratio of HDFC Balanced Advantage Fund as on 30 November is 1.78% for the Regular plan and 1.14% for the direct plan. Download.

mutual-fund 2021-12-22 Livemint