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Risk-averse investors or those nearing retirement could consider shifting part of their riskier assets to conservative hybrid funds such as HDFC Multiple Yield Fund - Plan 2005.
Conservative hybrid funds invest 10-25 per cent in equity and the rest in debt instruments. The higher allocation to debt helps steady growth of principal with minimal risk. The equity component, on the other hand, helps boost returns.
As the name suggests, HDFC Multiple Yield Fund - Plan 2005 tries to capitalise on the multiple yields. Within debt, the fund adopts an accrual strategy, making the most of interest receipts rather than gains from bond prices.
In equity, the fund invests in dividend yield stocks, essentially in companies that have stable cash flows and a good track record of paying dividends. During a downturn, this strategy offers stability.
Performance
HDFC Multiple Yield Fund - Plan 2005 has generated consistent risk-adjusted return since its launch. The fund has delivered 10.4, 8.1 and 10.3 per cent annualised returns during one, three and five years, respectively, while the category posted 6.9, 7.9 and 9.4 per cent returns.
The fund generated outperforming returns across various equity market cycles as well. During the mid-cap rally in 2014 and the downtrend that followed in 2015, it delivered relatively higher risk-adjusted returns and outperformed peers with a wide margin. The fund is less impacted by interest rate cycles since it follows the accrual strategy in its debt investment.
HDFC Multiple Yield Fund - Plan 2005 has maintained an equity-debt mix of 19:81 (on average, over the last three years). On the equity side, the investment focus is on dividend yield stocks.
As per the latest data, the dividend yield of the fund for the equity component was around 1.33 per cent, which is almost similar to the funds that are predominantly investing in dividend yield stocks such as BNP Paribas Dividend Yield Fund (dividend yield of 1.2 per cent), Principal Dividend Yield Fund (1.4 per cent) and ICICI Pru Dividend Yield Equity Fund (1.6 per cent).
On the fixed income portfolio, the fund strictly follows an accrual strategy —investing in debt instruments with an average maturity of around 15 months and holding till maturity.
This has enabled it to avoid interest rate risk and earn steady returns that are nearly equal to the underlying yield on the bonds.
The fund usually invests in NCDs, Commercial Paper and Certificate of Deposit, while avoiding government securities. The average maturity as per the latest portfolio (October 2017) was 4.1 months.
The fund’s debt portfolio includes a smaller allocation to the AA and below rated debt instruments. Currently, its exposure to lower rated — AA and below — is at 8.8 per cent of total assets in one debt instrument issued by L&T Infrastructure Finance Company. This mitigates the credit risk in the portfolio, though the fund has had higher exposure to lower rated bonds in the past.
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