L&T Prudence is a good choice for investors with a low risk appetite. The fund is an equity-oriented balanced fund, investing up to 35 per cent in debt instruments. It was originally launched in early 2011 as Fidelity Children’s Plan – Education, before the takeover of Fidelity by L&T Mutual Fund. It thus has a limited track record.

But in this short period the fund has proved its mettle across rallies (2012 and 2014) and volatile phases of the market (2013 and 2015) by beating the returns of bellwethers as well as the broader CNX 500/BSE 500 indices. Over one and three years, the fund has been a top performer in the equity-oriented balanced funds category, trouncing the category average by 5-7 percentage points.

Strategy On the equity side, L&T Prudence holds a diffused portfolio of 60-70 stocks, investing predominantly in large-caps (stocks with market capitalisation of ₹10,000 crore and above). Even in mid-cap-oriented rallies, such as the one in 2012, or in broader rallies, such as 2014, mid-caps have not exceeded 10-16 per cent of the equity portfolio. The fund plays it safe on the debt side as well, by predominantly sticking to AAA or AA rated bonds. It, however, makes up for this low-risk strategy through deft asset allocation.

In 2014, for instance, the fund’s move into government securities in the debt portion of its portfolio was well-timed. Thus, as bond yields dropped from about 9 per cent to under 8 per cent, the fund made the most of the rally in bond prices. From holdings of about 15-20 per cent in non-convertible debentures (NCDs) in the beginning of 2014, it quickly moved into G-Secs, holding almost 27 per cent in it by the end of the year.

Secondly, sector shifts within equities also helped boost returns, with the fund rightly preferring software and consumer non-durables in 2013, while choosing cyclicals, such as banking and autos, in the 2014 rally. Given the volatility this year, it has since reduced exposure to banking stocks and built on defensives such as software, consumer non-durables and pharma stocks.

Current portfolio The fund currently holds about 68 per cent in equities. Private sector banking stocks, such as HDFC Bank and IndusInd Bank, and IT players, such as Infosys and TCS, are top bets. On the debt side, given the benefit of rate cuts has been factored into bond prices, it has brought down its government securities holdings to about 16 per cent. It has, instead, deployed funds in top-rated corporate bonds and NCDs from companies such as Rural Electrification Corporation, Tata Sons, NABARD, IDFC, HDFC and Power Grid.

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