The Hindu Business Line : HDFC Prudence: Invest

HDFC Prudence remains a good choice for first-time investors looking for a blend of equity and debt in their portfolio. It tops the balanced fund category over a five-year period. The fund has averaged a return of 42 per cent over this period, against the Nifty's 30 per cent. Over a one-year period, its performance lags funds such as Magnum Balanced and FT India Balanced, which are more aggressive in their equity allocation.

Investing in Prudence over the past year would have delivered better returns than a strategy of investing about 65 per cent in an equity fund such as HDFC Equity and the remaining in a debt fund such as HDFC Income or even a money market fund. It would also have saved you the trouble of re-balancing your portfolio and the associated transaction costs.

Suitability: As it is an equity-oriented balanced fund, it is suitable for investors with an appetite for equity-like returns, but who wish to contain downside risks through an exposure to debt.

Prudence has been one of the more conservative funds in the balanced fund category, maintaining a constant allocation of 60-65 per cent in equity and the remaining in debt, even as peers have taken more aggressive equity exposures to capitalise on the bull rally. Most balanced funds are, these days, at least 65 per cent invested in equity, so that they qualify as an equity-oriented fund and investors get tax benefits. Despite its conservative approach, Prudence has remained among the top performers year after year.

In recent months, the fund has been more aggressively managed than in the past. Despite this, it can still be considered for one's core portfolio, as it has delivered superior returns on a risk-adjusted basis.

Prudence has gradually increased its allocation to equity since the correction in May-June; as of end-October, Prudence had about 75 per cent of its assets invested in equity. The fund appears to have picked the right stocks post the market correction, as it has topped the performance charts over the past six months. It has outpaced the performance of average diversified equity funds during this period.

Portfolio overview: The fund's equity holdings are well diversified, with about 40 stocks in the portfolio. Prudence appears to have focused on the domestic consumption and outsourcing themes, with FMCG, retail and auto ancillary stocks figuring prominently in the portfolio.

The top three sectors account for about 35 per cent of the portfolio. About 20 per cent of the assets are invested in stocks with a market-capitalisation of less than Rs 2,000 crore.

The fund has about 15 per cent invested in money market instruments and about 10 per cent in double-A and triple-A rated corporate debt.

Fund facts: HDFC Prudence was launched in 1994. The fund has an asset base of Rs 2,000 crore. The minimum investment amount is Rs 5,000.

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