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HDFC Multiple Yield Fund: Hold

Suresh Krishnamurthy

INVESTORS in HDFC Multiple Yield Fund can stay with the fund. The fund has done well in the six months since its launch, outperforming its benchmark during the period. At the same time, its riskiness, measured in terms of fluctuations in returns, has been lower than the available alternative investment options. Fresh investments can be considered after observing the fund for a longer period.

HDFC Multiple Yield targets absolute returns. Its aim is to reduce the chances of capital depreciation over the medium term. If the fund delivers on this stated strategy and yields positive returns every year, the overall return to the investor over a time frame of beyond five years will be attractive.

Portfolio: The fund can invest 15- 25 per cent in equities with the rest parked in debt instruments. The fund will predominantly invest in dividend yielding stocks and debt securities of roughly one-year maturity. HDFC believes this strategy reduces the chances of capital depreciation.

The fund was fairly large in size with net assets of just more than Rs 500 crore at the end of February 2005. It had about 15 per cent parked in equities. Equity portfolio was concentrated and the top ten stocks accounted for 72 per cent of the amount invested in equities. Overall, there were 18 stocks in the portfolio.

Nearly 32 per cent of net assets were invested in money market instruments and only about 5 per cent in government securities. The average portfolio maturity of the debt portion was just 7.5 months at end-February.

Performance: HDFC Multiple Yield Fund has generated returns of about 5.7 per cent since launch. This is much higher than what was generated by bond funds but lower than what was earned by a few monthly income plans. But while fluctuation in daily returns was only as much as that of a bond fund, the fluctuation in the MIPs was 40-50 per cent higher.

The performance suggests that Multiple Yield Fund would be only as risky as a bond fund but will deliver far superior returns. In addition, as the fund grows in size, volatility will reduce.

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