L&T India Prudence: Buy

A good balance between debt and equity, deft juggling of sectors, and risky moves that paid off, have helped the performance of L&T India Prudence fund.

With a one-year return of 23.8 per cent, the balanced scheme has beaten even large-cap diversified equity funds.

L&T India Prudence was a part of Fidelity’s basket, and was unbundled from Fidelity Children’s Plan – Education, itself launched in 2011. It thus has a short track record.

But since the time of its launch, both equity and debt markets have had severe bouts of volatility, and the fund’s mettle may be reasonably judged. Its one- and three-year performance places it in the top quartile of equity-oriented balanced funds.

L&T Prudence’s equity portfolio is oriented towards large-cap stocks.

But it adds a healthy dose of mid-caps to the mix (usually at 20 per cent of the portfolio). In its debt portfolio too, the fund has sometimes invested lower credit-rated instruments, though these offer better rates.

It does try to diffuse the risk by holding over 50 stocks, but the fund’s overall portfolio is still riskier than other solid performers, such as HDFC Balanced.

The fund is suitable as a diversifier to a portfolio.

L&T Prudence is benchmarked against a combination of the BSE 200 index and the CRISIL Short-term Bond index. Since the fund’s launch, it has beaten the combination about 90 per cent of the time on an annual rolling return basis. In the one- and three-year periods, it has beaten its benchmark by a margin of 4 to 8 percentage points.

The fund’s one- and three-year returns are better than those of peers FT India Balanced, Birla Sun Life ’95 and HDFC Prudence.

Equities usually make up more than 70 per cent of L&T Prudence’s portfolio, but from time to time this proportion has dipped. From around 74 per cent towards the end of the 2012 bull-run, the fund pared its equity holding to a low of 68 per cent just ahead of the walloping equity markets took in mid-2013.

With equities again uncomfortably heating up, the share has dropped to 70 per cent in favour of short-term debt in the form of the CBLO market and corporate debt.

The fund doesn’t hold much cash. For the past year, software has been the top holding, with stocks such as TCS and Infosys. But banks were the top holding before the fund quickly cut share at the start of 2013.

Expecting an economic turnaround going forward, it recently bought into capital goods and mining sector stocks, such as Kalpataru Power, Thermax, NMDC, and Larsen & Toubro.

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