HDFC Multiple Yield 2005: Invest

Investors looking to benefit from the spike in short-term interest rates as a result of the tight liquidity situation in the economy, can buy the units of HDFC Multiple Yield 2005, a fund with a proven track record.

The scheme is an income fund, with its investment style resembling that of a monthly income plan. A majority of its portfolio is invested in debt instruments with a minor portion allocated to equity. The allocation to equity has ranged between 8-18 per cent over the past 2-3 years.

Over one-, three- and five-year time-frames, HDFC Multiple Yield 2005 has outperformed its benchmark — Crisil MIP Blended Index. The level of outperformance has been a healthy two percentage points over longer periods of five to seven years.

Top quartile

In the last five years, the fund has delivered compounded annual returns of 9.3 per cent, placing it in the top quartile of funds in its category.

These returns are higher than funds such as DSPBR MIP and SBI Magnum MIP Floater.

Another fund from the same house — HDFC Multiple Yield — invests nearly a quarter of its assets in equity, but has still only managed to match HDFC Multiple Yield 2005’s returns, despite taking higher risks.

Investors with low-to-moderate risk appetite can take exposure by putting in small sums in the scheme as a means of diversification, especially given the volatile equity markets currently prevailing.

Portfolio and strategy

HDFC Multiple Yield 2005 invests over 80 per cent of its portfolio in debt and the rest in equity most of the time.

The scheme takes bets on debt instruments that have a very short-term maturity profile. Its debt portfolio has had an average maturity period of less than six months most of the time over the past few years.

Its recent portfolio reveals that HDFC Multiple Yield 2005 has invested in securities with a yield-to-maturity of 11.86 per cent, with the average maturity profile being 85 days.

This yield is among the highest in the category. All funds with a longer term maturity profile are trading at much lower yields.

Given the spike in short-term lending rates after the Reserve Bank’s liquidity tightening moves, the fund has benefited from investments in such short-term securities.

Nearly 47 per cent of its portfolio is invested in certificates of deposit and commercial papers, while another nearly 30 per cent is parked in other debt instruments.

Shriram Transport Finance, Punjab National Bank, Sesa Goa and EXIM Bank are some of the institutions where the fund has invested.

Most of the instruments are rated AAA, A1+ and AA+, indicating a fairly high degree of safety.

The rates for lower tenures in key avenues such as certificates of deposits and commercial paper has turned attractive, especially in light of the tight monetary condition in the banking system.

The equity portion too is safe with investments in select large-cap and quality mid-cap stocks.

Also, allocation to individual stocks has been less than 1 per cent of the portfolio most of the time, thus reducing concentration risks. The equity portion is expected to provide a fillip to returns.

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