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Aarati Krishnan

WITH absolute returns of around 90 per cent over the past year, the HDFC Prudence Fund remains the top choice among the balanced funds available to the investor.

Its performance in 2003 reinforces the case for investing in a fund based on its track record across two or three market cycles. The NAV of the fund's Growth Plan has quadrupled since the end of 1998, and now stands at Rs 45.71 .

Suitability: Investors with an appetite for risk, who are looking to build equity exposures now, should consider routing their exposures through the HDFC Prudence Fund. Given the sharp run-up in equity market levels, any investment made now in an equity-oriented fund, is likely to carry a big dose of downside risk.

But as a balanced fund with a near-40 per cent exposure to debt or debt equivalents, the HDFC Prudence Fund may provide better downside protection than a pure equity fund, while allowing you to participate in any further appreciation in equity values.

Performance: With a 90 per cent return over the past one year, the fund outperformed the Crisil Balanced Fund Index, its benchmark, by a wide margin. Though only 60-65 per cent of the fund's assets are invested in equities, the fund has managed to outpace a good number of pure equity funds, both over the past one year and over a five-year time-frame.

HDFC Prudence Fund adopts a flexible asset allocation pattern; both its equity and debt exposures can swing between 40 and 60 per cent of its assets. But in practice, the fund has tended to stick with a particular asset allocation pattern for two to three years, based on its view of the equity and debt markets.

For the past couple of years, the fund has been allocating 60-65 per cent of its portfolio to equities and the rest to debt and money market instruments. In 2003, the fund appears to have periodically rebalanced its equity portfolio to keep equity in the 60-65 per cent range.

Between June and December 2003, despite the sharp appreciation in equity values and in the NAV, the equity exposure has actually fallen from 62.2 per cent to 60.6 per cent.

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