In the dynamic landscape of mutual funds, in this article, we will throw some light on one among the best mutual fund i.e. HDFC Balance Advantage Fund which stands out as a versatile and strategic investment option. This blog post aims to provide a comprehensive guide, covering essential aspects such as fund strategy, historical performance, risk factors, and the advantages it offers to investors, which will help at least to answer your queries regarding the best mutual fund to opt for and terminologies associated with the mutual fund industry. Let’s get started.
What is Mutual Fund ? Who manages it?
A Mutual Fund is a type of investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. The fund is managed by a professional fund manager or management team, who make investment decisions on behalf of the investors.
Types of Mutual Funds:
Equity Funds: Invest primarily in stocks, aiming for capital appreciation. Eg. Investment in HDFC, Reliance, etc.
Bond Funds: Invest in fixed-income securities, providing regular income. Eg. Govt. Bonds, Green Bonds, etc.
Balanced Funds: Allocate investments between stocks and bonds to achieve a balance of growth and income. Eg. Mix of Stocks and Bonds. The allocation may vary depending upon risk apetite and expected returns.
Money Market Funds: Invest in short-term, low-risk securities, offering stability and liquidity. Eg. Certificates of deposit (CDs): Issued by banks, offer a fixed interest rate for a fixed period.
Commercial paper: Unsecured, short-term debt issued by corporations.
Treasury bills: Issued by the U.S. government, considered the safest of all money market investments.
Repurchase agreements (repos): Short-term agreements to sell securities and repurchase them at a later date.
Index Funds: Track a specific market index to replicate its performance. Eg. Bank nifty, Nifty, Sensex, etc.
Sector Funds: Concentrate on a specific sector of the economy (e.g., technology, healthcare).
Thus, in this article, we will learn about HDFC Balanced Advantage Fund, which is a popular choice among investors seeking a balanced approach to their investments. This fund invests in a mix of equities and debt instruments.
The details of Asset Class is as follows
Asset Class | Percentage |
Equity Holding | 67.09% |
– Large Cap Investments | 42.53% |
– Mid Cap Investments | 6.52% |
– Small Cap Investments | 7.68% |
Other | 10.36% |
– GOI | 16.59% |
– NCD & Bonds | 9.96% |
Total | 100.00% |
Now, most important aspect is of dividend :
Dividend type: HDFC Balanced Advantage Fund offers both growth and monthly income options. The growth option reinvests the dividends back into the fund, allowing for capital appreciation. The monthly income option distributes a fixed monthly dividend to investors.
NAV: The Net Asset Value (NAV) of the fund is the price at which you buy or sell units of the fund. The NAV is calculated daily and reflects the value of the underlying assets of the fund.
Monthly dividend: The monthly dividend option of HDFC Balanced Advantage Fund aims to distribute a fixed amount of Rs. 0.35 per unit every month.
Expense ratio: The expense ratio is calculated by dividing the fund’s total annual operating expenses by its average net assets under management (AUM).
It is expressed as a percentage. For example, an expense ratio of 1% means that for every Rs.1,000 you invest in the fund, you’ll be charged Rs.10 annually to cover the fund’s expenses.
HDFC Advantage Fund charges Expense Ratio of 1.43% (direct plan).
Why is the expense ratio important?
It impacts your returns: A higher expense ratio means more money is taken out of the fund for expenses, leaving less to grow your investment.
Comparing funds: When comparing similar funds, it’s important to consider their expense ratios to decide the best value for money.
Lower expense ratios are generally considered more favorable for investors.
Dividend history: The fund has a consistent track record of paying dividends, with a history of increasing the dividend amount over the years. However, past performance does not guarantee future results.
Taxable or not: Dividends are taxable as income in the hands of the investors. More information for tax on mutual Funds :
Maximize your tax savings by holding your investment for at least one year, allowing you to benefit from the lower long-term capital gains tax rate of 10%.
Be aware that selling your investment within one year triggers the short-term capital gains tax of 15%, which can considerably reduce your profits.
Good or bad?
Whether HDFC Balanced Advantage Fund is good or bad depends on your individual investment goals and risk tolerance and cost- analysis of Pros and Cons. Here’s a breakdown:
Pros:
Diversification: The fund’s balanced approach offers diversification across asset classes, reducing overall risk.
Income generation: The monthly income option provides regular income, suitable for those seeking cash flow.
Long-term capital appreciation: The growth option reinvests dividends, leading to potentially higher capital appreciation over the long term.
Reliable track record: The fund has a consistent history of paying dividends and generating returns.
Cons:
Moderate returns: Compared to pure equity funds, HDFC Balanced Advantage Fund may offer moderate returns.
Market fluctuations: The fund’s value is subject to market fluctuations, which can lead to short-term losses.
Tax implications: Dividends are taxable, which can impact your overall returns.
Let’s know the method for calculating Dividend Yield:
NAV (Net Asset Value): The NAV represents the per-unit market value of the mutual fund. It is calculated by dividing the total value of the fund’s assets by the number of outstanding units. NAV reflects the current market value of one unit of the mutual fund.
Let’s understand with real life scenario,
Suppose you have a mutual fund with an annual dividend distribution of $2 per share, and the current NAV of the fund is $50. To find the dividend yield:
Dividend Yield = Dividend/NAV *100
i.e. 2/50 *100= 4%
In this example, the dividend yield for the mutual fund is 4%. This means that, based on the current market value (NAV) of the fund, investors can expect a 4% return in the form of dividends over the course of a year.
Is dividend guaranteed?
No, dividends are not guaranteed. The fund manager decides whether or not to distribute dividends based on the fund’s performance and market conditions.
Conclusion:
HDFC Balanced Advantage Fund offers a balanced investment option with the potential for both income generation and capital appreciation. However, it’s crucial to consider your individual financial goals and risk tolerance before investing. Please consult a financial advisor for personalized advice.
Disclaimer: This blog is for informational purposes only and should not be considered financial advice. Please consult a financial advisor before making any investment decisions.