A consistent fund

FUND PICK/ HDFC Prudence

Background: HDFC Prudence was launched in January 1994. It has an entry load of 2.25 per cent for investment up to Rs 5 crore and no exit load. The minimum investment is for Rs 5,000, followed by multiples of Rs 100. It has both dividend and growth options.

Performance: The fund is one of the oldest hybrid schemes around. Fund manager Prashant Jain has done a good job over the years in moderating the fund's risk and delivering excellent returns over time. It has been in the top quartile for six years of the last nine calendar years.

The fund's return since launch was at 18.95 per cent as on May 14, 2004. Its five-year return stood at 25.55 per cent compared to the category's 15.45 per cent.

Its one-year return was at 64.28 per cent compared to the average balance fund's 15.45 per cent. Over the last five years, the additional 10 per cent has brought substantial benefits to investors.

Portfolio: The fund owes its success to consistent portfolio re-balancing, good stock selection and quality bond holdings. It sticks largely to an asset allocation of 60-40 between equity and debt.

It hardly crossed this limit even in 2003 - the year of the equity rally. It still managed to top the category that year with gains of 92 per cent. Thus, unlike most of its peers that gained on higher equity allocation, HDFC Prudence rode the rally on smart stock selection and sector moves.

A strong growth in its top holdings like SBI, Grasim and Bhel did the trick. Its mid-cap picks like Bharat Electronics, Shree Cements and Swaraj Mazda also did well.

The fund's equity portfolio is spread across 20-30 stocks, but the fund manager has a successful track record in moving sectors. In 2003, he kept a relatively high exposure in financial services compared to other funds and was rewarded handsomely.

In October 2003, he exited energy holdings when the Supreme Court directed the government to seek the Cabinet's nod before disinvesting in oil PSUs.

In recent times, the fund has been bullish on tech stocks, which has worked well. Its picks - Infosys and Satyam - have come up with good results for March 2004.

On the debt side, the fund typically sticks with gilts and high-quality corporate issues, but has taken a few risks in AA and above bonds.

Outlook: HDFC Prudence has a consistent and strong long-term performance record. It has gone through all phases of the market cycle and managed it quite well.