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Analyst Review , may 18th

Good and consistent returns have made the fund a star performer. The largest equity-oriented hybrid fund can be a gem in any portfolio. Apart from delivering high returns , the fund protects the downside well

HDFC Prudence can be called the gem in any portfolio ever since its launch in 1994. It is the largest fund in the category of equity-oriented hybrid funds, with an asset size of Rs 2,150 crore.

Such has been the consistency of this fund, that it managed to outperform the Sensex in each of the eight calendar years from 1998 to 2005. An achievement no other fund --- even equity funds --- have managed to replicate. It was only in 2006 that it failed to beat the Sensex in so many years. Stability of fund manager is another plus, as Prashant Jain has remained at the helm for the past 13 years.

HDFC Prudence has been fishing the right opportunities to generate handsome returns at the same time protecting investor wealth during the market falls with its debt component. Over the past year, HDFC Prudence managed a return of 16.29 per cent, far ahead of its category average of 5.03 per cent.

With an aim to jack-up returns, the fund shifted focus from large-cap universe to mid- and small-cap stocks in late 2003.

Over the past six months, the fund has reduced its exposure in financial services, automobiles and consumer non-durable goods sectors. It has grown very bullish on the energy stocks, increasing exposure on the sector from 0.74 per cent in September 2006 to 8.6 per cent by March 2007. With the largest exposure to basic/engineering and services and companies like ONGC, AIA Engineering, Infosys, Crompton Greaves constituting the top holdings, the equity side seems pretty safe.

On the debt side, the fund manager has maintained a cautious approach by keeping bulk of the assets in quality corporate bonds and now commercial papers. At present, the fund holds 9.44 per cent of its assets in ICICI Bank commercial papers.

What else can an investor expect from a fund that can deliver excellent returns year after year and protect their wealth during the troubles on the bourses?

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