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Depend On It

We have always liked this balanced fund. And the reason is not hard to guess. In the five years ending September 28, 2005, this fund has outperformed an average diversified equity fund with a 60:40 equity debt portfolio.

Within its category, the fund has rarely been rated below four stars and has donned top ratings since December 2002. This speaks volumes about the fund's consistency.

As on September 28 this year, HDFC Prudence has gained 35.44 per cent to beat even the 35.05 per cent return of an average diversified equity fund. This is exactly the thing that makes this balance fund stand out. It races like an equity fund but with utmost stability.

Traditionally a large-cap dominated fund, a shift of focus towards mid- and small-cap companies since late last year has worked very well for the fund--it has outperformed its peers by a huge margin. In recent times, allocation to equities as well as small-cap stocks has increased. Since January, small-caps have occupied on an average over 20 per cent of the portfolio, which is much more than previous years.

HDFC Prudence's long-term performance is praiseworthy. In more than 10 years of existence, the fund has put up a top quartile performance every year. If we ignore the recent few months, the fund has delivered by largely sticking to its 60:40 equity debt allocation. Even in 2003, when the equity markets were on fire, it continued with this approach and gained 91.92 per cent.

Astute sector moves and a portfolio spread over 20 to 30 stocks has clicked for the fund. For instance, the fund manager exploited the post-9/11 tech rally by increasing exposure to the sector from 5.6 per cent in November 2001 to 15.8 per cent in December 2003. Similarly, when energy stocks were shooting up in 2002, he increased exposure to the sector from 4.3 per cent in January 2002 to 16.7 per cent by March. He banked heavily on banking stocks and increased exposure from 5.4 per cent in November 2002 to 17.34 per cent in July 2003.

The fund's debt portfolio is conservatively managed. The stress here is on quality with AAA papers dominating the portfolio along with gilts.

Even an all-equity portfolio can easily accommodate this fund.