Hybrid mutual funds, also known as balanced mutual funds or balanced funds, are a unique range of funds that attempt to balance the risk and potential growth of equity investments with the steady performance/constant income offered by debt investments. In case of a hybrid fund, the investments are diversified ranging from large cap equity instruments with the extremely safe government securities which provide regular income with minimum level of risk. Hybrid funds are an excellent diversification tool for an investment portfolio as they provide a unique balance of risk and returns to the investor.
HDFC, the Housing Development and Finance Corporation, has grown over the years to include additional areas of operation including banking, insurance and asset management. As part of its portfolio of asset management products, HDFC Mutual Funds has launched the HDFC Prudence Fund, which balances the risk of equity investments with the consistent performance offered by debt instruments.
HDFC Mutual Fund is a trust in line with the Indian Trusts Act 1982. The AMC is a venture between HDFC and Standard Life Investments Limited, while HDFC Trustee Company Limited acts as the trustee of this AMC. HDFC Mutual Fund manages a number of mutual funds across the spectrum ranging from equity funds to liquid funds, while also providing portfolio management services to interested parties. Among its many offerings is the HDFC Prudence Fund, which is one of the leading hybrid mutual funds in India.
Investment objective of HDFC Prudence Fund
The HDFC Prudence Fund is deemed to be most suitable for investors who are seeking to receive periodic income from their investment, while also receiving capital appreciation over the long time. More importantly, the one of the key objectives of the HDFC Prudence Fund is to prevent capital erosion in the long term, which occurs often in case of equity funds when the markets have a bull run. Moreover, the fund will invest in a range of equities as well as equity-related instruments, while also maintaining a balance through investments in various debt instruments and debt-related investment options.
Fund Information and Statistics
- Launch Date: The HDFC Prudence Fund regular plan was launched on 1st February 1994, while the direct plan was launched on the 1st of January 2013.
- Fund Type: The HDFC Prudence Fund is an open-ended hybrid fund i.e. investors can invest in or exit this fund at any time of their choice. Moreover, being a hybrid fund, the debt investment allocation will range from 25% to 40%, while the equity investment allocation will range from 60% -75%.
- Minimum Investment: When an investor makes his/her first purchase in the HDFC Prudence Fund, the minimum investment amount will be Rs. 5,000, while the minimum amount for an additional purchase is Rs. 1,000. The minimum amount for a repurchase in this mutual fund is 50 units or Rs. 500.
- Risk Category: The HDFC Prudence Fund attempts to balance the risk of equity exposure with additional investment in debt funds, which perform consistently and offer the option of generating a regular income even when the markets witness a bull run. Due to its exposure to both equity and debt and changes in allocation as a result of market conditions, the mutual fund is classified as a moderate high risk investment option.
- Exit Load: The fund allows investors to liquidate or switch out no more than 15% of the units bought without having to pay any exit load. Otherwise, an exit load of 1% is chargeable on the fund units being redeemed/switched out prior to completion of 1 year from the date of initial investment. This is not applicable in case the switch is made from direct plan to regular plan.
- Tax Considerations: Being an equity-oriented mutual fund, HDFC Prudence follows the same taxation rules as that of other equity oriented fund i.e. if redeemed before completion of 1 year period from the date of initial investment, short term capital gains taxes of 15% is applicable on the redeemed amount. On the other hand, if held for a period of 1 year or more, the redeemed amount is tax free.
- Fund Manager: The HDFC Prudence Fund is managed by 2 individuals – Mr. Rakesh Vyas and Mr. Prashant Jain. Mr. Vyas has an overall experience of 13 years out of which 8 years is in equity research. He is currently a fund manager dedicated to managing overseas investments. Mr. Jain is currently working as HDFC’s Executive Director as well as CIO (Chief Investment Office). He has over 20 years’ experience in research and fund management in the mutual funds industry.
Plans and Options Available with HDFC Prudence Fund
- Direct Plan: The HDFC Prudence Fund is available in the form of a direct plan wherein, investors can purchase their units of the mutual fund directly from HDFC Mutual Funds. This case, the NAV of the fund is usually higher than that of the regular plan, however, there is no worry regarding any portfolio management or brokerage fees, hence the payout amount tends to be higher at the time of redemption of the scheme.
- Regular Plan: In case of the regular plan, the investor purchases the units through a third party broker or distributor, hence there are often distribution charges, portfolio management fees or brokerage charges that may be applicable to this investment. However, in some cases, no such fees are charged such as if you make the HDFC Prudence fund regular plan investment through Paisabazaar.com.
- Dividend Option: This option allows the investor to receive dividend payouts on their investments whenever the fund declares a dividend payout. At the time of payout, the NAV is decreased by an amount equal to the dividend payout. In case of the dividend option, the investor can opt for dividend reinvest or dividend payout. In case of dividend reinvest option, additional units are obtained equal to the value of the dividend earned otherwise the payout is made to the investor’s linked bank account. These dividend options are available in case of both direct and regular plans.
- Growth Option: In this case, the profits earned by the fund are reinvested into the fund thereby enabling further growth of the investment. Such growth increases the NAV overtime as no interim payments are made. Subsequently, at the time of redemption, this increased fund value allows the investor to book profits on their investment. The growth option is available in case of both regular and direct plans of HDFC Prudence Fund.
Investment Eligibility in HDFC Prudence Fund
The following are some of the key eligibility criteria for those interested in investing with HDFC Prudence Fund:
- Minimum 18 years of age
- Resident Indian
- KYC complaint as per SEBI requirements – address/ID proof/ Aadhar-based KYC and PAN.
- Any other criteria as determined by HDFC Mutual Funds to comply with SEBI requirements.
Top Holdings of HDFC Prudence Fund
In the following section, we have tabulated the leading key equity and equity-related investments of HDFC Prudence Fund*:
|Investment Sector||Top Holdings|
|Financial||State Bank of India, ICICI Bank, Bank of Baroda, Rural Electrification, Canara Bank, etc.|
|Diversified||Larsen & Toubro, Apar Industries, etc.|
|Technology||Infosys, Tata Consultancy Services, etc.|
|Miscellaneous||Tata Steel, Aurobindo Pharma, BEML, Prism Cement, etc.|
|Energy||Reliance Industries, Cairn India, Power Grid Corp., NTPC, etc.|
|Automobile||Maruti Suzuki India, Tata Motors, etc.|
|Chemicals||Aarti Industries, Sharda Cropchem, etc.|
*The list is indicative and subject to change as per market conditions and fund objectives.
In the following section we will tabulate the debt and debt-related investments made by HDFC Prudence Fund*:
|Debt Instrument Type||Top Holdings|
|Bonds||8.75% State Bank of India, 8.6% Canara Bank, 9% Union Bank of India 2009, 10.75% IDBI Bank, 9.5% Union Bank of India 2048, 11.25% Syndicate Bank, etc.|
|Govt, of India Securities||8.13% GOI, 7.59% GOI 2026, 7.88% GOI 2030, 6.97% GOI 2026, etc.|
|Central Government Loan||8.17% GOI 2044, 8.24% GOI 2033, 8.32% GOI 2032, 8.24% GOI 2027, 8.33% GOI 2036, 8.6% GOI 2028, etc.|
|Bonds/Debentures||8.75% Axis Bank 2017, 7.95% HDFC 2026, etc.|
|Debentures||9.95% Syndicate Bank, 11.5% Bank of India 2050, 11.09% IDBI Bank 2050, etc.|
|Non-Convertible Debenture||11.5% Bank of India, etc.|
*The above list is indicative and subject to periodic change.
How to Invest in HDFC Prudence Fund
An investor can opt to invest through either the online route or the offline route when choosing to invest with the HDFC Prudence Fund. In case of the online route, those with a HDFC Mutual Fund Account can easily log into their account and choose their investment amount in order to invest in the HDFC Prudence Fund. In case of investment made through HDFC Mutual Fund, the investor can choose to invest in either the regular plan or the direct plan, depending on his/her choice.
In case of an offline application, the individual investor has to make the investment through an intermediary such as a broker. The investor has to fill out the required application forms and submit copies of all relevant documents along with the deposit cheque to complete the initial investment. Subsequent investments in the scheme would also require the investor to fill out necessary forms and provide cheques for the amount invested or an ECS mandate to facilitate the investment process. The offline route may require the investor to make payments of brokerage as well as portfolio management fees in order to complete the investment process.