HDFC Prudence Fund becomes HDFC Balanced Advantage Fund.
HDFC Mutual Fund has proposed to merge HDFC Prudence Fund and HDFC Growth Fund into HDFC Balanced Advantage Fund. HDFC Prudence Fund is a large balanced scheme managing assets worth Rs 36,594 crore. The new scheme is a balanced advantage fund that will dynamically manage its portfolio between equity and debt instruments.
According to mutual fund advisors, investors should consider selling their investments in HDFC Prudence Fund.
“For investors who had invested in the scheme with a view to keep a 70: 30 allocation (in equity and debt), may exit the scheme after the merger. Going by the changed portfolio allocation and strategy, the scheme will become less volatile. But, it will also generate lesser return in the bull market,” says Shweta Jain, Founder & CEO, Investography. Also, most investors in the fund have come in for the monthly dividend and there is no surety of this payment now, she adds.
The AMC will allow existing unit holders of HDFC Prudence Fund, who do not wish to continue with the scheme, to exit the scheme without any exit load between May 3 and June 1.
Mutual fund advisors also say that investors should be mindful about a likely to change in taxation of the scheme. HDFC Prudence Fund was an equity-oriented hybrid scheme or balance scheme that is considered as an equity scheme for the purpose of taxation. Investments in equity schemes held over a year qualify for long-term capital gains tax of 10 per cent.
Balanced advantage funds may be treated as non-equity schemes if their equity holdings fall below 65 per cent over a prolonged per over a prolonged period, according the notice. If investments in debt schemes are held for more than three years, they qualify for long-term capital gains tax of 20 per cent with indexation benefit.
HDFC Balanced Advantage will be classified as an open-ended balanced advantage fund. The revised scheme may invest up to 100 per cent in equity and equity-related instruments, up to 100 per cent in debt securities and money market instruments, up to 10 per cent in units issued by REITs and InvITs and up to 10 per cent in non-convertible preference shares.
The scheme may also invest up to 35 per cent of its total assets in investment avenues in overseas financial markets via via ADRs/ GDRs and foreign securities for the purpose of diversification.