If you want a low risk fund which can give inflation-beating returns over a long term, HDFC Children’s Gift-Savings Plan (HDFC Children) fits the bill. This is a balanced fund that invests 80 per cent of its portfolio in debt and up to 20 per cent in equity.
This fund is for investors who intend to save with more than a three-year horizon. It discourages early withdrawals by investors with steep exit loads if units are sold before three years of investments. The fund is one of the top performing funds in its category.
This disciplined investing has rewarded investors in the past, as the fund returned 11 per cent and 10.2 per cent, respectively, over three- and five-year periods. This is much higher than the benchmark CRISIL MIP blended index which returned 6.75 per cent and 6.5 per cent during the same periods. Double-digit returns also helped the fund beat inflation while protecting against downside.
Suitability
Investments in HDFC Children can be done on behalf of the minor. There are two options available for the investor. In the lock-in option, the investor has to stay invested for a period of three years or until the child turns 18, whichever is later. There is also a non lock-in option which has exit load, if sold before three years of investments.
The fund offers superior returns to the traditional fixed income options with slightly higher risk. This is especially for investors in the 20- and 30-per cent tax brackets, the reason being, the capital gains on debt-oriented balanced funds can avail of inflation indexation benefits in terms of tax. On the other hand, the interest on deposits is taxed at a marginal rate of tax. In periods of high inflation, the capital gains after indexation shrinks significantly for debt-oriented funds.
For instance, three years ago, three-year fixed deposits were offering a maximum of 7.5 per cent. Post-tax, for investors in the 20- and 30- per cent tax brackets, the returns would have worked out to annualised 6 per cent and 5.2 per cent, respectively. But, the post-tax yield for HDFC Children works out to 10.65 per cent (based on its return of 11 per cent). We have assumed capital gains tax computation with indexation. The risk-adjusted returns, therefore, seem attractive for this fund.
HDFC Children’s Gift Fund is also remarkably consistent. On a three-year rolling return basis, it has given double-digit returns 73 per cent of the time since inception.
Performance and portfolio
HDFC Children has lower volatility than the benchmark.
The fund predominantly adopts a buy-and-hold strategy for its debt portfolio which reduces the risk of volatility arising out of interest rate changes. The fund continues to manage debt portfolio with average maturity between two and three years. The equity portion of the portfolio is relatively more actively managed but the portfolio turnover is still not high. The fund upped its exposure to banking stocks from the December lows while booking a portion of profits in stocks such as VST Industries, TTK Prestige and Carborundum Universal during the last few months.
The current portfolio maturity for the debt portion is 2.62 years with yield to maturity at 8.8 per cent.
The NAV of the fund is Rs 23.04.