The Hindu Business Line : HDFC Multiple Yield Fund: Invest

AN investment may be considered in HDFC Multiple Yield Fund, which has notched up a satisfactory track record over the past 15 months. Over a three-to-five year period, this fund delivered better returns than those from a bond fund by two-to-three percentage points.

HDFC Multiple Yield Fund aims to deliver positive returns and minimise the risks of capital loss. It invests in a combination of debt, money market instruments and equities. The focus in the equity space will be stocks that are attractive from a dividend yield perspective. This strategy is expected to cushion any downside risk to the portfolio from the equity component.

This is in contrast to the approach used in most monthly income plans, where the equity component is made up of stocks that could deliver capital appreciation; this enhances the risks, especially when the market goes through a protracted period of flat price trends or price declines. HDFC Multiple Yield carries a substantially lower risk than such monthly income plans. On a risk-adjusted basis, this fund is an attractive option.

The equity portion in HDFC Multiple Yield Fund has so far been confined to a maximum of about 15 per cent, though it has the flexibility to invest up to 25 per cent. Over the past few months, the fund has pruned its equity exposure to single-digit territory as a percentage of assets. A cash position of about 10 per cent and the reduction in allocation to equities has acted as a drag on returns. At this stage of the bull market, the latter dovetails with the investment objective of ensuring low risk of capital loss.

As far as the debt component is concerned, the fund has stepped up allocation to money market instruments, which accounted for about 50 per cent of the assets at the end of November. This represents a rise of about 15 percentage points compared to its allocation earlier this year.

This portfolio tilt appears designed to handle any increase in interest rates over the next six months and does not involve any significant sacrifice in terms of returns. The debt portfolio has a maturity of about seven months now. For a fund that invested in debt securities with such a maturity profile, the returns have been attractive.

Over the past year, the fund has generated returns of 9.77 per cent. This compares favourably with a combination of a pure income fund and a comparable equity portfolio. There could be years when a downturn in equities could knock a few percentage points from returns; but this damage is likely to lower than what the broad market will suffer.

Over a three-to-five year period, the effects of such declines are likely to be neutralised and there will also be a boost to returns by at least a couple of percentage points. If funds are redeemed within a year, there will be an exit load of 1 per cent, which will lower returns. Buy with a long-term perspective. This fund will fit neatly into a portfolio of fixed-income funds.

Fund facts: HDFC Multiple Yield Fund was launched in September 2004. The minimum investment is Rs 5,000. There is an entry load of one per cent.

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