October 5, 2022

The file for the longest tenure as fund supervisor of a single mutual fund scheme is held by Prashant Jain, the outgoing chief funding officer of HDFC AMC. He was the fund supervisor of HDFC Balanced Benefit Fund for 28 years. Right here’s a take a look at his legacy.

July 26, 2022 / 12:45 PM IST

Prashant Jain, one of many best-known fund managers within the Indian mutual fund business, stepped down as chief funding officer of HDFC AMC on July 22. This was only a few days after his managed belongings crossed the Rs 1 -trillion mark. HDFC Balanced Benefit Fund (HDFC BAF), one of many marquee schemes that Jain managed, has a wealthy historical past of rewarding its long-term traders. With an asset measurement of Rs 43,079 crore as of June 2022, HDFC BAF has returned a compound annual progress price of 18 p.c since its launch almost three a long time in the past. Whereas Jain’s technique delivered commendable outcomes over the long run, it had not been in a position to totally adapt to altering market dynamics at instances. Certainly, his funding philosophy took a beating many instances over the historical past of HBAF, partly as a result of his conviction on market circumstances and partly as a result of rising competitors from new entrants within the MF business, particularly small and mid-sized fund homes. We take a look at HDFC BAF, which Jain managed continuous 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 got here out with a regulation for recategorisation and rationalisation of mutual fund schemes, which noticed many schemes bear title modifications, modification of funding mandates and mergers. HDFC mutual fund merged two of its flagship schemes ‘HDFC Prudence Fund and HDFC Development fund’ and renamed them as HDFC Balanced Benefit Fund. Submit the merger, the observe file (since inception date, together with dividend historical past, and so forth) of the erstwhile HDFC Prudence Fund, which had an extended historical past of rewarding unitholders properly, have been thought of for the fund. Launched in 1994 by the erstwhile Twentieth Century AMC, HDFC Prudence was initially generally known as Centurion Prudence Fund. Although its fund home modified palms twice — Zurich India AMC acquired it in 1999 after which HDFC AMC acquired Zurich India in 2003 — Prashant Jain continued to handle the scheme from the time it was launched. Jain thus holds the file for managing a single mutual fund scheme in India for the longest length.

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 sooner avatar of HDFC BAF, was an aggressively managed hybrid scheme, and had a static asset allocation method, with 70-80% in equities. Until June 2021, HDFC BAF had managed to carry not less than 70% in equities. Regardless of being a hybrid scheme, it managed to generate long-term returns much like these of fairness schemes. For example, efficiency as measured by the common of a 10-year rolling return calculated from the final 20 years’ NAV historical past reveals that HDFC BAF delivered a compound annual return of 16 p.c whereas the Nifty 50 – TRI gave 13.3 p.c.

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 adopted a worth model fund-management method. He picked shares which are undervalued and selected sectors that profit when the economic system does properly. HDFC BAF portfolios all the time held massive portions of shares from sectors similar to banking, energy, petroleum merchandise, infrastructure and software program. Even amongst banks, Jain preferred state-owned and company banks similar to ICICI Financial institution. His portfolio was prepared to profit from an financial restoration, however at instances when the restoration was delayed, it took a beating. Increased allocation to the shares of PSU banks and the facility sectors was another excuse his funds didn’t do in addition to the competitors. The worth model of inventory selecting had additionally not favoured him between 2013 and 2019, when worth funds underperformed progress oriented funds significantly.

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 most well-liked high quality firms with sturdy enterprise fashions and aggressive strengths. His valuation-consciousness and conviction in constructing a portfolio that advantages from a turnaround within the financial cycle labored out properly over the long term. He recognized and invested in lots of shares at their early stage of progress. A lot of his long-term holdings have been multi-baggers and rewarded traders properly.

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.

In the course of the interval between 2013 and 2018, many fund homes have been aggressively selling the dividend plan of their balanced funds and unofficially promised to pay round 1 p.c in month-to-month dividend payouts on the principal invested. Throughout this era, dividends distributed by fairness funds (together with fairness balanced funds that invested not less than 65% in fairness belongings) have been solely tax free within the palms of the investor. So, many traders flocked to the dividend plan of the balanced funds. HDFC BAF benefited and collected a big corpus. Nonetheless, these dividend plans misplaced sheen when Union Funds 2018 proposed a dividend distribution tax (DDT) on the price of 10 p.c on equity-oriented mutual funds. That growth however, HDFC BAF has a wealthy observe file of paying dividend revenue to unitholders. It nonetheless continues to distribute notable dividend revenue to them. For example, the month-to-month dividend choice of HDFC BAF has distributed a cumulative gross dividend of about Rs 13.8 per unit during the last 4 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.

A lot of the schemes within the Balanced Benefit Funds class have been both newly launched or modified their elementary attributes in the course of the recategorisation train made throughout mid-2018. Of the 26 schemes underneath the class, HDFC BAF has topped the chart when it comes to return during the last 4 years because the new BAF class was launched. HDFC BAF was the odd man out until final yr. In June 2021, HDFC BAF started taking spinoff exposures and diminished its internet fairness allocation to 57 p.c. In different phrases, HDFC BAF lastly shed its unique avatar and embraced the dynamic asset allocation attribute of the class 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. That is the primary change on the helm in its chequered historical past of 28 years. Gopal Agrawal and Anil Bamboli will now handle the fund, whereas Srinivasan Ramamurthy will deal with asset allocation. Ramamurthy will determine how a lot HDFC BAF will put money into fairness and the way a lot goes into debt.

Dhuraivel Gunasekaran

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