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HDFC Income

While the fund has made an impressive debut, it is yet to cruise through volatile times

HDFC Income Fund was part of the maiden offerings from HDFC Mutual Fund in August 2000. The scheme seeks to optimise returns while maintaining a balance of safety, yield and liquidity. So far, the fund has paid a maiden dividend of 6% under its half-yearly option.

Launched just after the interest rate hike in July 2000, HDFC Income was fortunate with its timing and was blessed with a sizeable corpus of Rs 400 crore in a bearish market. The fund gradually invested its inflows, as the market sentiment improved in the latter part of 2000. Starting off with a maturity profile of less than a year, the fund has increased its portfolio maturity by augmenting exposure to government securities. As bond prices move up with falling interest rates with higher gains for longer dated paper, the fund has gained with an active stretching of maturity.

In its brief history, the fund has principally focussed on credit quality with an average 87% exposure to AAA bonds though has not refrained from dabbling in lower rated instruments to pick up yield. This has added to the safety and liquidity of the fund. Apart from a sizeable initial corpus, the fund has continued to receive steady inflows to emerge as a large-sized bond fund. The fund manager is currently running almost a fully invested portfolio to benefit from the falling yields in a bullish market.

It has been a dream debut for HDFC Income Fund, which has generated a simple return of 12.43% amidst falling interest rates. However, an encore is not guaranteed since returns will even out once interest rate stabilise. While HDFC Income may have taken off under favourable circumstances, the fund manager's skills in navigating the fund under adverse conditions are yet to be tested.