Balanced funds are a forgotten breed today and that is not surprising at all. Who has the time for an investment with a debt component, when riding the equity markets by being fully invested in equities seems like the order of the day? However, being financial planners, we have a different take on this issue. While there is nothing wrong with an investor with the requisite (read high) risk appetite investing in equities, asset allocation shouldn't be ignored either.
Simply put, asset allocation entails holding a portfolio comprised of various asset classes like equity and debt, among others. Over longer time frames, asset allocation can help investors protect their portfolios on the downside and create wealth as well. Powered by investments in both equity and debt, balanced funds qualify as asset allocation tools. The debt component in balanced funds can insulate the investor's portfolio from the volatility in the equity markets.
HDFC Prudence Fund ranks among the leading balanced funds in the country. Powered by an impressive track record across the risk and return parameters, the fund has often set the tone for its peers from the balanced funds segment.
What HPF offers
Launched in February 1994, HPF is among the oldest balanced funds in the country. To begin with, the fund was a part of Zurich India Mutual Fund; it entered HDFC Mutual Fund's stable when the latter bought over Zurich India Mutual Fund in 2003. Typically, HPF invests between 70 per cent -75 per cent of its assets in equities and equity-related instruments and the balance (25 per cent-30 per cent) is held in debt and money market instruments. Stocks from across market segments feature in the fund's equity portfolio. Historically, the fund has judiciously made use of its debt component to cut losses; a prime example being its investments in the year 2000 just before the tech crash.
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| NAV (Rs) |
1-Yr (%) |
3-Yr (%) |
5-Yr (%) |
Std. Dev. (%) |
Sharpe Ratio (%) | |
| Magnum Balanced (D) | 32.57 | 24.3 | 46.7 | 49.0 | 6.14 | 0.30 |
| HDFC Prudence (G) | 156.73 | 39.0 | 42.3 | 46.6 | 5.33 | 0.42 |
| JM Balanced (G) | 32.58 | 40.0 | 38.5 | 33.3 | 5.95 | 0.43 |
| ICICI Pru Balanced (G) | 45.74 | 32.0 | 36.3 | 36.7 | 5.55 | 0.35 |
| Birla Balance (G) | 34.90 | 22.9 | 27.4 | 32.2 | 4.58 | 0.33 |
For the purpose of peer comparison, we have considered balanced funds that have at least a 5-year track record. From the table, it is quite evident why HPF has often been considered a benchmark for other balanced funds. HPF has consistently pitched in impressive performances on the net asset value appreciation front vis-à-vis peers.
Over the 3-year time frame, the fund has clocked a growth of 42.3 per cent compounded annualised growth rate and is second only to Magnum Balanced (46.7 per cent CAGR). Similarly, HPF's NAV has risen by 46.6 per cent CAGR over the 5-year time frame.
HPF's benchmark index is CRISIL Balanced Fund Index. However, since the same is not commonly available in public domain, we are not in the position to comment on the fund's performance vis-à-vis its benchmark index.
Volatility
Standard Deviation is the measure of a fund's ability to keep volatility in performance under check. HPF (Standard Deviation 5.33 per cent) pitches in an impressive performance vis-à-vis its peers; the fund ranks second only to Birla Balance (4.58 per cent). The top performer on the NAV appreciation front i.e. Magnum Balanced (6.14 per cent) languishes on the lowest rung. This means that the fund's strong showing on the returns front has come at higher risk levels to investors.
Risk-adjusted return
Sharpe Ratio measures a fund's performance on the risk-adjusted return parameter. HPF (Sharpe Ratio 0.42 per cent) delivers another noteworthy showing and comes in second (albeit marginally) to JM Balanced (0.43 per cent). Magnum Balanced (0.30 per cent) trails the entire peer group.
Since inception in February 1994, the fund has clocked a growth of 25.1 per cent CAGR. As can be seen in the graph above, Rs 100 invested in HPF on inception would have grown to approximately Rs 2,222 by December 7, 2007.
Fund management
The consistent showing delivered by HPF can in no small measure be attributed to the process-driven investment approach followed at HDFC Mutual Fund. The fund management team led by Prashant Jain has been a constant feature with the fund and has played an important role in its success.
What should investors do?
Now the big question -- should an investor consider investing in HPF? Well, that would depend on his risk appetite, investment objective and existing portfolio, among a host of other factors. At Personalfn, we have always maintained that a 'one size fits all' approach doesn't work while investing. An investment avenue that is apt for one investor could be grossly unsuitable for another. Therefore, investors would do well to consult their investment advisors/financial planners to determine the suitability of HPF in their portfolios.
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