HDFC Children’s Gift Fund – Investment Plan: Invest

Investors can buy the units of HDFC Children's Gift Fund – Investment Plan (HDFC Gift), given its impressive track record of delivering returns over the long term.

This equity oriented balanced fund has managed to outpace the returns of its benchmark — CRISIL Balanced Index — over one-, three- and five-year timeframes. The level of outperformance has been to the tune of 4-14 percentage points.

Investments in HDFC Gift can be done on behalf of a minor, ideally for meeting the child's long-term goals. The fund has a lock-in period of three years or until the child's age of 18, whichever is later. There is also an option to invest in this fund normally, but withdrawals for the first three years would entail an exit load of 3-1 per cent.

Performance

Over the past three years, HDFC Gift has delivered compounded annual returns of 30.6 per cent, which places it on top of the funds in its category. The fund, while participating in the market upswing from March 2009, has also been able to stem the fall in its NAV better than CRISIL.

Balanced during the market correction from November 2010, HDFC Gift, by taking substantial exposure to mid-cap stocks, requires investors to have an above-average risk appetite.

But given the lock-in period and if invested for the long-term, it may be possible for investors to ride out volatility and generate steady returns, by taking the systematic investment plan (SIP) route.

Portfolio and strategy

HDFC Gift has a track record of over 10 years. The fund takes substantial exposure, to the tune of 30-40 per cent of the portfolio, to mid-cap stocks (less than Rs 7,500 crore market capitalisation).

In general, while mid-cap stocks are volatile in nature, they can also prop returns of the overall portfolio (with some increase in risk). But HDFC Gift tempers the risk profile somewhat by taking debt and cash positions to the extent of 25-30 per cent of the portfolio. Also, with exposure to individual stocks restricted to less than 5 per cent of the portfolio, concentration risks are reduced.

Banks, consumer non-durables and pharma have mostly figured among the top few sectors held. For a brief while in 2011, the fund had reduced exposure to banks, which were beaten heavily.

Over the last few months the fund has again increased exposure to this sector in the light of the sector's attractive valuations. Exposure to the software sector has been increased over the past one year.

The fund also takes a ‘buy and hold' strategy and doesn't churn its portfolio often.

This is evident from the fact that no new stock has been added to the portfolio over the past one year, although some have been exited and stakes have been increased in a few others.

A compact portfolio of around 25 stocks is maintained by the fund, which is lower than the 30-odd stocks that used to figure in its portfolio earlier.

The fund's debt portfolio represents a mixed bag of instruments. Apart from certificates of deposits of banks, it also takes exposure to corporate debts to perk up yields. The ratings for the instruments issued by these institutions vary from A or AA+ rated.

The debt portfolio comprises CDs or CoDs of Britannia Industries, HDFC, Shriram Transport Finance, Bajaj Finance, ICICI Bank, IRFC and Jet Airways.

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