Now This fund is called HDFC Balanced Advantage Fund
Equity-oriented products of mutual funds have seen their strongest-ever investor appetite in the past year, but one scheme has stood out in the inflow deluge. HDFC Prudence Fund, an equity oriented balanced scheme, has seen assets under management soar 250% or `17,000 crore in the last 15 months to `24,479 crore. The balanced fund category’s assets increased 147% in the period. The jump in assets has made HDFC Prudence the largest scheme that is taxed as an equity product in the domestic mutual fund industry .
So, what makes the 23-year-old product so special?
The fund, managed by Prashant Jain, widely regarded as one of the most competent money managers, has delivered an annualised return of 19.42% since its inception. In the last 10 years, the fund has returned 14.4% annually against the category average of 10.9%. A balanced fund invests in a mix of equity and debt. This product enjoys the taxation benefit of an equity scheme if it invests at least 65% in stocks.
While higher returns by the fund has been a draw for investors, another reason that has resulted in heightened interest in the product has been its dividend payout.
Wealth managers said the scheme’s assets saw a spike after it started offering a monthly dividend payout option since January 2016.Since then, the fund has been paying a dividend of `0.3 monthly which on a face value of `10, translates into a yield of 12% per annum.
It is clear that ever since the fund started its monthly dividend option in 2016, the AUM has seen a sharp jump. The other good fund in its sta ble, HDFC Balanced, which does not have a monthly dividend option, did not see such a sharp jump in AUM
HDFC Prudence, which had been paying an annual dividend every year since 1999, changed the option to monthly dividend in 2016. Since dividend income is tax free in hands of investors and bank deposit rates were on a downward trend, many schemes were offering monthly dividends, to attract investors.
Between March 2015 and January 2016, a lot of fund houses started to offer dividend plan in their hybrid schemes. However, HDFC Prudence has been beneficiary of this trend due to their high monthly dividend yield
Other funds in the category Canara Robeco Balance, ICICI Prudential Balanced Fund, L&T India Prudence and Tata Balanced too have been paying monthly divi dends, said wealth managers.
Monthly tax-free dividend of 12% attracted both savvy HNIs as well as retirees HDFC Prudence. Jain’s strategy of betting on an industrial recovery along with interest rates heading lower has helped the fund return 27% over the last year, further attracting investors.
Advisors say investors with a time frame of five years and above can hold on or buy balanced funds, but those buying it merely with the objective of earning high dividend should be ready for lower dividends in case the markets correct.
Fund houses can pay regular dividends only out of the distributable surplus. Investors’ depending on balanced funds for regular dividends may be caught on the wrong foot if the market changes track and moves in a southward direction for some time
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