The Hindu Business Line : HDFC MF plans close-ended fund with 5-year maturity

HDFC Mutual Fund has worked out a close-ended fund with a maturity period of five years. It will be automatically converted into an open-ended product upon maturity.

The proposed HDFC Prudence Dynamic Fund, which will aim at securing optimal returns from a blend of equity, equity-related instruments and debt, will charge an exit load of four per cent if investors seek redemption before 12 months from the date of allotment of units.

To be benchmarked against Crisil Balanced Fund Index, the fund (positioned as an "asset allocation" product by HDFC MF) will be nearly 100 per cent invested in equities in an `under-valued' market, the offer document filed with the regulator has mentioned.

Fund allocations

In case the market is `fairly-valued' or `over-valued', the fund's allocations to equity will be nearly 65 per cent or nearly 35 per cent, as the case may be. There will be nearly 100 per cent exposure to debt if `asset bubble' conditions prevail.

Exit loads will reduce progressively. An investor who goes in for redemption or switch-out after, say, 36 months but before 48 months, will be required to pay one per cent. There will be no load after 54 months up to the date of maturity.

Redemption window

In its close-ended form, the fund will provide for a redemption/switch-out window - described as specified redemption period - at half-yearly intervals at NAV-based prices. This will involve the first five business days after the end of each calendar half-year. The first such window will coincide with January 1-5, 2007, it is mentioned. After conversion, it will be possible to redeem on each business day on an on-going basis.

The trustees reserve the right not to convert the scheme, if such action is considered appropriate. They also reserve the right to roll it over for a further period in line with SEBI norms, the offer document has added.