Performance of HDFC Prudence Fund

HDFC Prudence is one of the oldest and largest balanced funds. It is a consistent ‘above average’ performer not only in terms of returns but also risk-adjusted returns. The ET Quarterly MF Tracker June ’06 classified the fund as ‘platinum’, which is the best classification any fund can get among the balanced fund category of funds. Performance: HDFC Prudence has managed a return of 33.3% in one year till date, while the category managed 25.5%. For three years, the fund managed 40.6% return on a CAGR basis, more than 33% returns managed by the category.
In five years, it managed 43.8% CAGR returns, compared to 30.7% for the category. The fund has given the second highest returns after SBI Magnum Balanced in the past three years. In the last one year till date, its returns remain at the second notch after Canbalance II. Portfolio strategy: It recently increased its allocation to equities. It can now invest in equities in the band of 40-75% of the total portfolio. It now has 75% in equities – the highest among the balanced funds. So the risk-return profile of the fund now is on the higher side.
Investors in dividend options could expect to get dividends on a tax-free basis. Most top balanced funds recently increased allocation to equities to adhere to the new tax norms. Budget ’06 made it mandatory to hold, on an average, 65% of the portfolio in equities to qualify as an equity-oriented fund for tax purposes. It was made effective from June 1, ’06.
The threshold was 50% earlier. Such equity-oriented funds enjoyed exemption from long-term capital gains tax, as well as dividend distribution tax (around 14% for individuals in the case of income funds). So, while investors in the dividend option got tax-free dividends, the investors in growth option redeemed units at NAV after a year without capital gains tax. Today, HDFC Prudence has the highest equity holding in its fund portfolio. As per the latest available portfolio, the fund has 75.2% of its total portfolio in equities.
DSPML Balanced has 68.7%, FT India Balanced has 65.4% and Birla Balanced has 66.7%. Among those which are below the 65% threshold are UTI Balanced (61.1%) and PruICICI Balanced (61.8%). As far as HDFC Prudence’s equity portfolio is concerned, it is currently tilted in favour of mid- and small-cap stocks. Around 60% of the equity portfolio is in mid- and small-cap stocks. Its top five holdings constituted 24.7% of the portfolio and its top 10 stocks, 41.4%. As on August 31, ’06, its top sectors were basic/engineering (12%), FMCG (11.8%) and automobile (11.2%).
On the debt side, the fund has invested at the shorter end in certificate of deposits and non-convertible debentures. With higher interest rates, investment in shorter-end debt securities is the safest investment strategy. HDFC Prudence erstwhile was called Zurich Prudence of Zurich India MF.
The Zurich group exited the fund business in India in ’03 and all schemes, including that of Zurich Prudence, was transferred to HDFC MF. The current fund manager, who is also the CIO of HDFC MF, has been managing the fund throughout his tenure in Zurich India MF and the current stint at HDFC.
For an investor, a constant churn of fund managers is always a concern and for an investor, it is reassuring to know that the best-performing fund manager has stayed with the fund. It is the largest balanced fund in the country with assets of Rs 1,793 crore followed by UTI Balanced (Rs 544 crore) and PruICICI Balanced (Rs 422 crore). The earlier floating of the fund and its consistent good performance ensured that investors put in money to make it the biggest fund.

Get more information from this article.