HDFC Multiple Yield Fund: Invest

Fresh investments can be considered in the units of HDFC Multiple Yield Fund, a debt oriented balanced fund.

With a mandate to invest up to 25 per cent in equities, the fund figures in the top three in the category performance chart in the last couple of years. The fund returned an annualised 9.2 per cent in the last two years.

This is far superior to the category average return of 3.9 per cent compounded annually delivered by debt-oriented balanced funds and MIPs during this period.

This outperformance in recent years enabled it to surpass yet another top performer from HDFC mutual fund's stable — HDFC MIP Long Term Plan.

The fund's holding in short-term instruments, which enjoyed high interest rates in recent times, was the key reason for its outperformance.

But replicating a similar performance in future may be a little difficult for HDFC Multiple Yield. For one, the tight liquidity situation has eased a bit and short-term rates have fallen as a consequence.

The rate cuts have also resulted in the three-month certificate of deposit rates falling from 11.5 per cent to 9.2 per cent in a month.

The downside for short-term rates, however, may be limited. Besides, with the current trend of lower deposit inflows into banks, the demand for short-term instruments is likely to remain healthy. This may offer some support to short-term rates.

Suitability

HDFC Multiple Yield is suitable for investors with a slightly higher risk appetite than pure fixed income investors. It, however, sports lower risk from another debt-oriented fund, HDFC MIP Long Term Plan.

While both funds have equity exposures, HDFC Multiple Yield has lower interest rate risk, given that it holds instruments with short-term maturity.

As part of its equity portfolio, the fund typically invests in dividend paying stocks.

This, together with interest payout on its debt instruments, provides steady returns.

On a rolling return basis over the past five years, the fund delivered negative returns only 11 per cent of the time. The annual loss suffered during this period was also a maximum of 4.4 per cent as against 8.4 per cent decline in CRISIL MIP Index (its benchmark) and 14 per cent loss recorded by HDFC MIP Long Term.

Performance and portfolio

HDFC Multiple Yield returned 10.25 per cent compounded annually over a five-year period. Its benchmark CRISIL MIP index returned 7.26 per cent.

If one invested in six-month certificate of deposits during this period, the return would have been 8.4 per cent compounded annually.

The fund has maintained an average maturity of around six months over the last five years.

The debt portfolio mostly consists of certificate of deposit, which have lower risk than commercial paper. It has also actively managed its equity portfolio. It has pared its equity exposure during the market fall.

During August 2011, when the market was volatile, the fund had only 12.8 per cent exposure to equities, down from 20 per cent a year ago. As markets fell, the fund once again increased its equity exposure to 19.2 per cent as of last month.

Improving performance of the fund attracted inflows. The scheme size went up from Rs 44 crore in March 2011 to average scheme size of Rs 82 crore as of March 2012.

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