HDFC Prudence, a balanced fund, appears to be a good investment option for conservative investors based on its performance since inception. The fund, over a five-year period, has outpaced the BSE Sensex by five percentage points and its benchmark Crisil Balanced Fund Index by 25 percentage points. The improved returns from debt over the past two years could have partially helped the fund's return in recent periods.
Suitability: The fund appears a good option for investors strategically trying to balance investments between debt and equity. . HDFC Prudence's mandate permits the fund to invest 40-75 per cent of the assets in equity. To avail of the tax advantage available to equity funds, Prudence usually invests 65 per cent in equity, with equity allocation currently at 75 per cent. Within equity, the fund has a substantial investment in mid-cap stocks with market capitalisation of less than Rs 7,500 crore. Its exposure to debt, however, makes it less risky than a typical diversified equity fund.
Performance: The fund has generated a return of 23.7 per cent for the past year and has trailed its benchmark marginally. This can be attributed to the fact that it was underweight on construction and power sectors.
However, during the January correction, the fund was able to contain declines better than the market, with its NAV declining only 13 per cent whereas the CNX Midcap has shed close to 22 per cent. The fund has performed consistently and in the past twenty-four months, on a rolling returns basis, the fund has outperformed the benchmark about 60 per cent of the time.
Portfolio Overview: The fund has a well-diversified portfolio, with the top 10 stocks accounting for 42 per cent of the equity portion. Banks, Capital Goods and Auto Ancillaries were the preferred sectors.
In all, the fund has 19 sectors in the portfolio. The fund's debt allocation sports a higher tilt towards corporate debt. With the interest rate peaking, the debt component may be able to deliver better returns and lend support to overall performance. The fund's average maturity of its debt is 2.75 years and any weakness in interest rates may be positive for performance
CALL.: STRONG BUY THIS FUND