HDFC vs ICICI: A tale of two fund houses and their BAFs

Deciding which balanced advantage fund is better for you depends on your risk appetite

- Anil Poste

In the complex world of mutual funds, where every decision holds potential financial implications, finding the right investment avenue can be challenging. Balanced advantage funds (BAFs) emerge as a relatively stable option, offering investors a balanced mix of equity and fixed income exposure that adapts to market dynamics. Today, we'll delve into BAFs through the lens of two big players-HDFC Balanced Advantage Fund (HDFC BAF) and ICICI Prudential Balanced Advantage Fund (ICICI PRU BAF).

What is a BAF?

A BAF, or a dynamic asset allocation fund, invests in both equity and debt, and rebalances between them periodically. The idea is to give you a less volatile experience than a pure equity fund. BAFs are generally taxed as equity (10% long-term capital gains, or LTCG, after 1 year) since they generally take a 65% equity exposure at the gross level. However, they typically use derivatives to hedge part of this exposure when the markets rise. "The dynamic asset allocation category is expected to be a go-to fund, an allweather fund for all kinds or investors," says Nirav Karkera, head of research at Fisdom, a wealth-tech platform.