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Prashant Jain and HDFC Balanced Advantage Fund: A look into the curious relationship

The record for the longest tenure as fund manager of a single mutual fund scheme is held by Prashant Jain, the outgoing chief investment officer of HDFC AMC. He was the fund manager of HDFC Balanced Advantage Fund for 28 years. Here’s a look at his legacy.

July 26, 2022 / 12:45 PM IST
Prashant Jain, one of the best-known fund managers in the Indian mutual fund industry, stepped down as chief investment officer of HDFC AMC on July 22. This was just a few days after his managed assets crossed the Rs 1 trillion mark. HDFC Balanced Advantage Fund (HDFC BAF), one of the marquee schemes that Jain managed, has a rich history of rewarding its long-term investors. With an asset size of Rs 43,079 crore as of June 2022, HDFC BAF has returned a compound annual growth rate of 18 percent since its launch nearly three decades ago. While Jain’s strategy delivered commendable results over the long term, it had not been able to fully adapt to changing market dynamics at times. Indeed, his investment philosophy took a beating many times over the history of HBAF, partly due to his conviction on market conditions and partly due to rising competition from new entrants in the MF industry, especially small and mid-sized fund houses. We look at HDFC BAF, which Jain managed non-stop for over 28 years from inception, and his legacy.
Prashant Jain, one of the best-known fund managers in the Indian mutual fund industry, stepped down as chief investment officer of HDFC AMC on July 22. This was just a few days after his managed assets crossed the Rs 1 -trillion mark. HDFC Balanced Advantage Fund (HDFC BAF), one of the marquee schemes that Jain managed, has a rich history of rewarding its long-term investors. With an asset size of Rs 43,079 crore as of June 2022, HDFC BAF has returned a compound annual growth rate of 18 percent since its launch nearly three decades ago. While Jain’s strategy delivered commendable results over the long term, it had not been able to fully adapt to changing market dynamics at times. Indeed, his investment philosophy took a beating many times over the history of HBAF, partly due to his conviction on market conditions and partly due to rising competition from new entrants in the MF industry, especially small and mid-sized fund houses. We look at HDFC BAF, which Jain managed non-stop for over 28 years from inception, and his legacy.
In mid-2018, market watchdog SEBI came out with a regulation for recategorisation and rationalisation of mutual fund schemes, which saw many schemes undergo name changes, modification of investment mandates and mergers. HDFC mutual fund merged two of its flagship schemes ‘HDFC Prudence Fund and HDFC Growth fund’ and renamed them as HDFC Balanced Advantage Fund. Post the merger, the track record (since inception date, including dividend history, etc) of the erstwhile HDFC Prudence Fund, which had a long history of rewarding unitholders well, were considered for the fund. Launched in 1994 by the erstwhile Twentieth Century AMC, HDFC Prudence was initially known as Centurion Prudence Fund. Though its fund house changed hands twice — Zurich India AMC acquired it in 1999 and then HDFC AMC acquired Zurich India in 2003 — Prashant Jain continued to manage the scheme from the time it was launched. Jain thus holds the record for managing a single mutual fund scheme in India for the longest duration.
In mid-2018, market watchdog SEBI came out with a regulation for recategorisation and rationalisation of mutual fund schemes, which saw many schemes undergo name changes, modification of investment mandates and mergers. HDFC mutual fund merged two of its flagship schemes ‘HDFC Prudence Fund and HDFC Growth fund’ and renamed them as HDFC Balanced Advantage Fund. Post the merger, the track record (since inception date, including dividend history, etc) of the erstwhile HDFC Prudence Fund, which had a long history of rewarding unitholders well, were considered for the fund. Launched in 1994 by the erstwhile Twentieth Century AMC, HDFC Prudence was initially known as Centurion Prudence Fund. Though its fund house changed hands twice — Zurich India AMC acquired it in 1999 and then HDFC AMC acquired Zurich India in 2003 — Prashant Jain continued to manage the scheme from the time it was launched. Jain thus holds the record for managing a single mutual fund scheme in India for the longest duration.
HDFC Prudence, the earlier avatar of HDFC BAF, was an aggressively managed hybrid scheme, and had a static asset allocation approach, with 70-80% in equities. Till June 2021, HDFC BAF had managed to hold at least 70% in equities. Despite being a hybrid scheme, it managed to generate long-term returns similar to those of equity schemes. For instance, performance as measured by the average of a 10-year rolling return calculated from the last 20 years’ NAV history shows that HDFC BAF delivered a compound annual return of 16 percent while the Nifty 50 – TRI gave 13.3 percent.
HDFC Prudence, the earlier avatar of HDFC BAF, was an aggressively managed hybrid scheme, and had a static asset allocation approach, with 70-80% in equities. Till June 2021, HDFC BAF had managed to hold at least 70% in equities. Despite being a hybrid scheme, it managed to generate long-term returns similar to those of equity schemes. For instance, performance as measured by the average of a 10-year rolling return calculated from the last 20 years’ NAV history shows that HDFC BAF delivered a compound annual return of 16 percent while the Nifty 50 – TRI gave 13.3 percent.
Jain followed a value style fund-management approach. He picked stocks that are undervalued and chose sectors that benefit when the economy does well. HDFC BAF portfolios always held large quantities of stocks from sectors such as banking, power, petroleum products, infrastructure and software. Even among banks, Jain liked state-owned and corporate banks such as ICICI Bank. His portfolio was ready to benefit from an economic recovery, but at times when the recovery was delayed, it took a beating. Higher allocation to the stocks of PSU banks and the power sectors was another reason his funds didn’t do as well as the competition. The value style of stock picking had also not favoured him between 2013 and 2019, when value funds underperformed growth oriented funds considerably.
Jain followed a value style fund-management approach. He picked stocks that are undervalued and chose sectors that benefit when the economy does well. HDFC BAF portfolios always held large quantities of stocks from sectors such as banking, power, petroleum products, infrastructure and software. Even among banks, Jain liked state-owned and corporate banks such as ICICI Bank. His portfolio was ready to benefit from an economic recovery, but at times when the recovery was delayed, it took a beating. Higher allocation to the stocks of PSU banks and the power sectors was another reason his funds didn’t do as well as the competition. The value style of stock picking had also not favoured him between 2013 and 2019, when value funds underperformed growth oriented funds considerably.
Jain preferred quality companies with robust business models and competitive strengths. His valuation-consciousness and conviction in building a portfolio that benefits from a turnaround in the economic cycle worked out well over the long run. He identified and invested in many stocks at their early stage of growth. Many of his long-term holdings were multi-baggers and rewarded investors well.
Jain preferred quality companies with robust business models and competitive strengths. His valuation-consciousness and conviction in building a portfolio that benefits from a turnaround in the economic cycle worked out well over the long run. He identified and invested in many stocks at their early stage of growth. Many of his long-term holdings were multi-baggers and rewarded investors well.
During the period between 2013 and 2018, many fund houses were aggressively promoting the dividend plan of their balanced funds and unofficially promised to pay around 1 percent in monthly dividend payouts on the principal invested. During this period, dividends distributed by equity funds (including equity balanced funds that invested at least 65% in equity assets) were entirely tax free in the hands of the investor. So, many investors flocked to the dividend plan of the balanced funds. HDFC BAF benefited and accumulated a large corpus. However, these dividend plans lost sheen when Union Budget 2018 proposed a dividend distribution tax (DDT) at the rate of 10 percent on equity-oriented mutual funds. That development notwithstanding, HDFC BAF has a rich track record of paying dividend income to unitholders. It still continues to distribute notable dividend income to them. For instance, the monthly dividend option of HDFC BAF has distributed a cumulative gross dividend of about Rs 13.8 per unit over the last four years.
During the period between 2013 and 2018, many fund houses were aggressively promoting the dividend plan of their balanced funds and unofficially promised to pay around 1 percent in monthly dividend payouts on the principal invested. During this period, dividends distributed by equity funds (including equity balanced funds that invested at least 65% in equity assets) were entirely tax free in the hands of the investor. So, many investors flocked to the dividend plan of the balanced funds. HDFC BAF benefited and accumulated a large corpus. However, these dividend plans lost sheen when Union Budget 2018 proposed a dividend distribution tax (DDT) at the rate of 10 percent on equity-oriented mutual funds. That development notwithstanding, HDFC BAF has a rich track record of paying dividend income to unitholders. It still continues to distribute notable dividend income to them. For instance, the monthly dividend option of HDFC BAF has distributed a cumulative gross dividend of about Rs 13.8 per unit over the last four years.
Most of the schemes in the Balanced Advantage Funds category were either newly launched or changed their fundamental attributes during the recategorisation exercise made during mid-2018. Of the 26 schemes under the category, HDFC BAF has topped the chart in terms of return over the last four years since the new BAF category was introduced. HDFC BAF was the odd man out till last year. In June 2021, HDFC BAF began taking derivative exposures and reduced its net equity allocation to 57 percent. In other words, HDFC BAF finally shed its original avatar and embraced the dynamic asset allocation characteristic of the category it belongs to.
Most of the schemes in the Balanced Advantage Funds category were either newly launched or changed their fundamental attributes during the recategorisation exercise made during mid-2018. Of the 26 schemes under the category, HDFC BAF has topped the chart in terms of return over the last four years since the new BAF category was introduced. HDFC BAF was the odd man out till last year. In June 2021, HDFC BAF began taking derivative exposures and reduced its net equity allocation to 57 percent. In other words, HDFC BAF finally shed its original avatar and embraced the dynamic asset allocation characteristic of the category it belongs to.
HDFC BAF will now have three fund managers. This is the first change at the helm in its chequered history of 28 years. Gopal Agrawal and Anil Bamboli will now manage the fund, while Srinivasan Ramamurthy will handle asset allocation. Ramamurthy will decide how much HDFC BAF will invest in equity and how much goes into debt.
HDFC BAF will now have three fund managers. This is the first change at the helm in its chequered history of 28 years. Gopal Agrawal and Anil Bamboli will now manage the fund, while Srinivasan Ramamurthy will handle asset allocation. Ramamurthy will decide how much HDFC BAF will invest in equity and how much goes into debt.
Dhuraivel Gunasekaran
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