HDFC Children's Gift-Savings Plan: Invest

Investments can be considered in the units of HDFC Children's Gift-Savings plan (HDFC Children). HDFC Children is a debt-oriented balanced fund that can invest up to a fifth of its portfolio in equity.

The fund compels investors to take a long-term view, levying steep load for exit within three years. This has helped it to focus long-term with less redemption pressures.

The fund has been among the top performers in the category of debt schemes which have limited exposure to equity. It has returned an annualised 13.4 per cent and 9.5 per cent, respectively, in the last three- and five-year periods. The category-average returns of all debt-oriented balanced funds (including monthly income plans) during these periods were 8.2 per cent and 6.1 per cent, respectively.

The fund's return also comfortably beat inflation in the last three years.

Suitability

The fund is suitable for investors who wish to build wealth to achieve long-term financial goals, such as children's education. The fund offers superior returns compared with traditional debt options such as fixed deposits. However, this comes at a marginally higher risk, by way of limited exposure to equities. The long-term nature of the product, though, somewhat mitigates equity risks.

While the fund for a brief period gave negative returns on a one-year-rolling-return basis, it has performed well over the long term.

Performance

The fund managed returns of 5.1 per cent in the last one year as against 2.4 per cent return generated by its benchmark, CRISIL MIP Blended Index, and 0.03 per cent return by CRISIL Debt Hybrid (75 :25) index.

The fund adopts a buy and hold strategy, which limits volatility arising from timing entry and exits based on interest rate cycle.

Even as many debt funds shifted to instruments that have short-term maturities, HDFC Children has maintained an average maturity in the range of two to three years for quite some time now. Given that over the last five years, the average yield on AAA corporate bonds with two year-maturity has been 8.7 per cent, holding such instruments until maturity helps earn decent returns with limited risks. The equity component acts as a kicker.

The fund currently holds 18 per cent in equity and 76 per cent in debt instruments. Much of the equity portfolio is invested in stocks of small and mid-cap companies. Debt portfolio has high exposure to corporate debentures.

It is noteworthy that there is a high exit load of 3 per cent for withdrawals made within a year. This comes down to 1 per cent in the third year. The fund thus gives a clear message that it is meant for the long term. Capital gains tax on sale will be similar to tax applicable for other debt funds.

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