VR Logo

HDFC Prudence for Retirement

I am 32 now and would like to retire at 60. I have a SIP with HDFC Prudence Fund for my retirement. Since this is a balanced fund, I feel I don't need to diversify my investments. Am I correct?

You have made the perfect choice. For a person like you, nothing can be better than a SIP in a balanced fund for retirement planning. And that too in a top performing balanced fund. Since retirement planning requires discipline, SIP is the best way to go about it and you have exactly done that.

Ideally, some sort of asset allocation model is suggested for retirement planning. As you grow older, more money should be invested in fixed income and less in equities. A balanced fund also belongs to that asset allocation model but the only difference is that the allocation is fixed here. HDFC Prudence Fund generally maintains a 60-40 equity-debt allocation.

As far as the fund's performance goes, it is unquestionably impressive. It has been in the top quartile of its category in all calendar years. A total annualised return of nearly 20 per cent in nine years depicts how strong it is on the performance front.

HDFC Prudence: Annual Returns
Year  Fund   Rank in Category   Category Average  VR Balanced
2003* 75.07 Jan-28 50.32 26.13
2002 24.68 Jan-28 13.43 15.18
2001 -2.88 Mar-23 -9.49 6.22
2000 -8.75 Feb-15 -15.16 -1.89
1999 104.71 04-Sep 94.61 40.63
1998 27.44 01-May 15.17 -3.21
*till December 5, 2003

But that is all history. Past performance is no guarantee of the fund's future performance. Thus, in addition to HDFC Prudence, a minor position of say 20-30 per cent could be taken in a well-diversified equity fund and a low risk bond fund. But take care that this does not distort your asset allocation profile and remember to check it at regular intervals. Never get overboard on any particular asset class just because that asset is performing well. Though HDFC Prudence will automatically take care of that, keep a close eye on your secondary investments, which we suggested outside the balanced fund.

Retirement planning is a delicate thing and should be viewed intelligently. After all, that is going to be your sole source of income after retirement. Thus, a bit of diversification is needed in your portfolio for retirement planning. And don't forget to increase your debt allocation, as you grow older. We are not advising you to exit HDFC Prudence in future, but play around with the minor exposure in other funds to alter your asset allocation in line with your age, so that when you are in your fifties, equities should form a much lower allocation in your overall retirement planning portfolio. This way, you will be able to avoid risk, as you grow old. Go ahead and look out for some good funds for that minor allocation we have suggested.

Post Your Query