Fund Analysis: HDFC Balanced Fund
Fri, Jan 22, 2016
Source : Khyati Shah, Citrus Interactive

HDFC Balanced Fund is an equity-oriented balanced fund. The primary objective of the Scheme is to generate capital appreciation along with current income from a combined portfolio of equity & equity related and debt & money market instruments. The fund was launched in September 2000 and is benchmarked against the Crisil Balanced Fund Index. The fund has an AUM of Rs 4,910 crores as on December 31, 2015 which is gone up by Rs 1,823 crores as compared to the last year December 31, 2014 (3,087crores). The peer set for the purpose of this study comprises all open-ended equity-oriented balanced funds.


HDFC Balanced Fund has a very good performance track record of consistently outperforming its benchmark index and the equity-oriented hybrid category average across all time frames as shown from the table given below. It has been in the second quartile of its peer-set across all time frames as shown from the table given below (except 2 and 5 years where it is in first quartile). Since inception is has outperformed its benchmark by 4.25%.

Scheme Name

6 Months

1 Year

2 Years

5 Years

Since Inception

HDFC Balanced Fund






Crisil Balanced Fund Index






Category Average












Figures are in % as on December 31, 2015; Returns above 1-year in Compounded Annual Growth Rate (CAGR)

When we look at the calendar year returns it’s quite clear that this fund has beaten its benchmark index and the equity-oriented hybrid category average (except the year 2012 where it has underperformed its Category average) in all the last five calendar years as shown in the table given below. The fund has been in the second quartile of its peer-set in four out of last five years. In the year 2014 it had been in the top quartile of its peer-set.

Scheme Name






HDFC Balanced Fund






Crisil Balanced Fund Index






Category Average












All figures in %

Risk: In terms of measures of risk such as standard deviation and beta (measured over last three years), the fund has taken lower risk compared to the category median.


Standard Deviation


HDFC Balanced Fund



Category Median




Risk-adjusted Returns: In terms Treynor and Sharpe ratio (measured over last three years), the fund has provided higher risk-adjusted returns than the category median.




HDFC Balanced Fund



Category Median




Portfolio Characteristics

Sector Concentration:  The fund’s concentration in the top 3, 5 and 10 sectors is higher than the category median highlighting high risk of the fund.


Top 3

Top 5

Top 10

HDFC Balanced Fund




Category Median





Company Concentration: The concentration of funds in top 3, 5 and 10 companies in its portfolio is lower than the category median highlighting lesser risk of the fund.


Top 3

Top 5

Top 10

HDFC Balanced Fund




Category Median





Number of equity holdings:  On equity count the fund runs a high diversified portfolio compared to its peer set. The fund currently holds 60 stocks in its portfolio (Nov 30, 2015), which is higher than the median stock count for the equity oriented - hybrid category, which currently stands at 53. Over the past five years the fund has always had a diversified portfolio with the number of equity holdings over this period averaging 52.

Cash allocation: The average cash allocation for last five years is 6.5 per cent. Its maximum allocation to cash over last two years was 9.09 per cent in January 2014 and lowest was 1.89 per cent in December 2014. In 2015 it had an average cash allocation of 4.15 per cent. Its cash allocation at the end of December 2015 was 3.33 per cent.

Portfolio Characteristics: The fund invests 60-70% of assets into equities and the rest in debt. As of November 2015 the fund’s exposure to equity stocks is 67.65% followed by debt with 24.80% and others with 7.55%.

Debt Allocation: The fund’s exposure to Government Securities is 22.40% and Corporate Debt is 2.40% which sums up to 24.80% in Debt.

Equity Allocation: The fund’s exposure to cyclical stocks currently is 46.64% followed by Services with 11.16% and Defensives with 9.85%. The Top five holding are Infosys Ltd., ICICI Bank Ltd., HDFC Bank Ltd., Reliance Industries Ltd. and State Bank Of India.

The top 5 sectors in the portfolio had an allocation of 55.38% which is higher than the category average of 52.90%. The top 5 sector include Bank - Private, IT - Software, Pharmaceuticals & Drugs, Engineering – Construction and Bank – Public.

In the last six months the fund has bought stocks of Interglobe Aviation Ltd., The Indian Hotels Company Ltd., J Kumar Infraproject Ltd., MRF Ltd., Power Grid Corporation Of India Ltd., Vedanta Ltd., Voltas Ltd. Insecticides (India) Ltd. and MM Forgings Ltd.

Whereas the stocks of Gateway Distriparks, Ltd.Mindtree Ltd. and Nirvikara Paper Mills Ltd. has been dropped from the portfolio.

Based on criteria such as equity count, sector concentration and company concentration, one can safely conclude that the fund runs a well-diversified portfolio.



The balanced product is positioned as a lower risk alternative to a pure equities scheme, while retaining some of the upside potential from equities exposure. The Scheme provides the Investment Manager with the flexibility to shift allocations in the event of a change in view regarding an asset class.

The fund manager continuously monitors the potential for both debt and equities to arrive at a dynamic allocation between the asset classes.

The equity and debt portfolios of the Scheme would be managed as per the respective investment strategies detailed herein.

Equity Investments:

The investment approach would be based on the concept of economic earning power and cash return on investments.

Five basic principles serve as the foundation for this investment approach. They are as following:

  • Focus on the long term
  • View our investments as conferring a proportionate ownership of the business.
  • Maintain a margin of safety (i.e. the price of purchase represents a discount to the intrinsic value of that business).
  • Maintain a balanced outlook on the market by regularly monitoring economic trends and investor sentiment.
  • The decision to sell a holding would be based on one of three reasons :
  • The anticipated price appreciation has been achieved or is no longer probabe.
  •  Alternative investments offer superior total return prospects, or
  • A fundamental change has occurred in the company or the market in which it competes.

In summary, the assessment of investment value is a function of extensive research and based on data and reasoning, rather than current fashion and emotion. The idea is to develop a model that allows us to identify "businesses with superior growth prospects and good management, at a reasonable price".

Debt Investments:

Debt securities (in the form of non-convertible debentures, bonds, secured premium notes, zero interest bonds, deep discount bonds, floating rate bond / notes, securitised debt, pass through certificates, asset backed securities, mortgage backed securities and any other domestic fixed income securities including structured obligations etc.) include, but are not limited to:

  • Debt obligations of / Securities issued by the Government of India, State and local Governments, Government Agencies and statutory bodies (which may or may not carry a state / central government guarantee).
  • Securities that have been guaranteed by Government of India and State Governments.
  • Securities issued by Corporate Entities (Public / Private sector undertakings).
  • Securities issued by Public / Private sector banks and development financial institutions.

The fund’s expense ratio is 1.50% which is much lower than the category median of 2.50%. The fund has an exit load of 1 per cent on or before one year from the date of investment. Minimum investment in the fund is Rs 5,000.


Fund Manager

Mr.Chirag Setalvad has been working as a Senior Fund Manager – Equities. He has over 16 years of experience of which 13 years in Fund Management and Equity Research and 3 years in investment banking. He is a B.Sc. in Business Administration from University of North Carolina. From March 2007 till date he is with HDFC AMC. He has also worked with New Vernon Advisory Services Pvt. Ltd., HDFC AMC, ING Barings N.V. Other funds managed /co-managed by him are HDFC Capital Builder Fund, HDFC Midcap Opportunities Fund, HDFC Children’s Gift Fund, HDFC Long Term Advantage and HDFC Multiple Yield Fund – Plan 2005 (equity assets).

Mr. Rakesh Vyas has been working as a Fund Manager - Foreign Securities and Senior Equity Analyst in HDFC AMC since October 2009. He has over 9 years of experience of which 3 years in Application Engineering (Control & Automation) and over 5 years in equity research. He is with HDFC AMC from Oct 2009 till date. He has also worked with Nomura Financial Advisory and Securities Pvt. Ltd., Lehman Brothers Services India Pvt. Ltd., GE Power Controls India Pvt. Ltd., Larsen & Toubro Limited. Mr.Vyas acts as the dedicated Fund Manager for Overseas Investments for all eligible Schemes of HDFC Mutual Fund.



The fund has consistently been in the second quartile and has managed to beat the benchmark and category average over most periods. A lower expense ratio, diversified portfolio and a stable fund management team make it is suitable for investors with moderate return expectations as the presence of debt in the portfolio protects the downside to some extent.

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