The Hindu Business Line : HDFC Multiple Yield Fund: Invest

With its distinct positioning and an actively managed debt and equity portfolio, this fund will be a good addition to a portfolio of fixed-income investments.

HDFC Multiple Yield Fund has an impressive track record and remains an attractive investment.

It appears well set to provide returns that are at least two to three percentage points higher than bond funds. Yet, its risk levels are not as much as those of monthly income plans. Investors aiming to build a fixed-income portfolio should make this fund one of the core components.

The objective of HDFC Multiple Yield Fund is to provide positive returns and minimise the risk of capital loss. It invests in debt as well as equities.

The equity component provides the kicker to returns, helped, in particular, by the buoyant trend in stock prices. The fund delivered a return of about 9.7 per cent over the past year.

Returns have remained consistent around this level over the past twelve months despite a modest rise in interest rates. It also suggests that the investment strategy, especially the type of debt it opts for, has worked well.

We believe the fund is capable of maintaining such performance, especially over the longer term. The portfolio tilt and active management are factors that support this view.

The fund has positioned the debt portfolio to weather the gradual rise in interest rates and benefit from this process. It has enhanced its exposures to money market instruments over the past eight months.

Even in the first quarter of 2006, allocation to money market instruments was stepped up about 15 percentage points.

The exposures to this asset category have doubled over the past year and this has had a beneficial impact on returns.

It has pared exposures to debentures. The debt portfolio has a maturity of about six-and-a-half months now. For such a maturity profile, the returns have been attractive.

Equally interesting is the manner in which the small equity component of the portfolio has been handled. The fund has been the flexibility to invest up to 25 per cent of assets in equities. It has, however, usually kept exposures at about 10 per cent.

Over the past couple of quarters, it has actively booked profits. It now has just 2 per cent of assets in equities and owns just two stocks, GlaxoSmithKline Pharma and Amtek Auto.

The fund invests in stocks that offer high dividend yield. Capital appreciation is only an incidental objective.

The sharp reduction in the equity component is perhaps attributable to the decline in dividend yield, with stocks scaling record highs over the past few months. The fund probably has taken the view that been in short-term debt paper will provide strength to the portfolio.

The principal risk is the possibility of the equity portfolio denting performance in years when stocks go through a sluggish phase or suffer declines.

If you invest with a three-to-five-year perspective, this risk will be minimised.

Such a time period is also appropriate because if funds are redeemed within a year, there will be an exit load of 1 per cent, which will significantly lower returns.

Invest with a long-term perspective.

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. Mr Dhawal Mehta and Mr Anil Bamboli manage the equity and debt components respectively.

The fund has an asset base of about Rs 500 crore.

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