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HDFC MIP Long-term

The largest MIP was among the worst-hit during the May crash. A pick for long-term investors

Long term investors can expect decent rewards from this fund. But risk-averse investors should skip it as HDFC MIP Long Term is designed to deliver surprises.

In its two calendar years of existence, the fund has earned huge returns to grab top position in the category. And the outperformance has been nothing short of breathtaking — while it gained 9.31 per cent in 2004 as against the average peer's 5.60 per cent rise, last year the fund earned 16.48 per cent, much better than the category average return of 9.18 per cent.

These huge returns have made HDFC MIP Long Term the largest MIP, managing assets in excess of Rs 881 crore. It is one of the most compelling options in the MIP category. However, there's a caveat.

HDFC MIP Long Term's huge return comes at a cost of above-average risk. Additionally, the fund has done well on back of high equity exposure in a bull market. The recent crash, therefore, gives a good opportunity to understand the risk associated with it. Between May 10 and June 1, the fund lost 3.87 per cent, to be placed among the worst hit MIPs.

With a quarter of its portfolio in equities, the fund is bound to suffer in a downturn. But with fund manager Prashant Jain at the helm of affairs, investors have reasons to remain confident that the fund will do well in the long-run.

The fund manager has made good use of the fund’s mandate to invest up to 25 per cent of its corpus in equities. On the debt side, active duration management is behind the fund's success. High quality corporate bonds have always dominated the debt portfolio. Initially, the fund used to invest in gilts but now they are out of favour.

To sum it up, a high equity exposure led by mid- and small-cap stocks has resulted in above average volatility for the fund. However, the fund more than compensates for its high risk by earning one of the best returns in the category.