HDFC Prudence — Invest

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Vidya Bala

Balanced fund HDFC Prudence is a good option for investors wanting to start an equity portfolio and for those who are worried about the market direction at present. Its five-year compounded annual return of 24 per cent is superior to even the category average of diversified equity funds.

Suitability: The fund would fit the core portfolio of any equity investor. Despite being a balanced fund , HDFC Prudence does not deprive investors of gains during an equity rally.

Adept calls in debt have not only provided a hedge during market corrections but actually helped the fund generate alpha returns, when compared with the bellwether indices.

Investors can consider opting for the systematic investment route, continuing the SIP for not less than three years. An SIP in HDFC Prudence over the last ten years would have yielded 30 per cent compounded annual return — a feat very few equity-oriented funds have achieved over this period.

Performance: HDFC Prudence returned 38 per cent over a one-year period, way ahead of the 19 percent-return of its benchmark Crisil Balanced.

After containing declines to about 42 per cent in the market correction of 2008, the fund had a quick climb-back thanks to its consistent equity exposure.

The fund pegged its equity exposure consistently between 73-75 per cent during the corrective phases — 75 per cent being the maximum the fund can allocate to equities. It has, however, reduced exposure to 71 per cent now, indicating that it may be turning a tad cautious.

The three-year return is among the best in the category. While peers such as HDFC Balanced and Reliance Regular Savings Balanced scored marginally higher over this period, they exhibited higher volatility in performance.

The fund’s assets under management swelled to over 75 per cent in the last year; higher than its NAV growth. This suggests that it has been seeing continuous inflows, contrary to the broader trend of schemes facing redemption pressure.

Portfolio: Banking and financial services, consumer non-durables and pharma are the top three sectors in the portfolio. However, the fund has been marginally tweaking exposure in these sectors, perhaps based on the extent of rally and valuations of stocks.

For instance, while it has largely maintained its exposure to banks at 14-15 per cent levels over the last year, it has reduced its exposure to pharma. The close to 11 per cent it held in pharma in September 2009 has been gradually reduced to 5 per cent now.

On the other hand, it increased its exposure to IT. It added shares of TCS after June, a stock that has rallied 40 per cent since .

On the debt front, HDFC Prudence government securities account for a good 14 per cent of the assets. The rest are invested in corporate debt instruments with rating not less than AAA.

(This article was published in the Business Line print edition dated October 31, 2010)
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