RETAIL RESEARCH

MUTUAL FUND SCHEME ANALYSIS

04 Aug 2016

HDFC Prudence Fund a Balanced fund with monthly payouts

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Key points:

Unit Growth of investments Vs. Benchmark

(Rebased to 100)

HDFC Prudence Fund is one of the oldest, largest in terms of assets managed and top performing funds
from the Hybrid (or Balanced) Equity Oriented category. Though the recent performance of the scheme
has been mediocre compared to peers, the performance over the long run especially since its launch has
been commendable.
Hybrid mutual funds (or otherwise called as Balanced funds) allocate their assets into both equity and
fixed-income assets to seek higher returns while minimizing risk. This hybrid strategy brings out the
benefit of both growth and income by investing in the asset classes of both - equity and debt (some
schemes also allocate into gold). The debt portion performs the task of protecting the downside whereas
the equity portion works towards attaining growth. Hybrid Equity Oriented mutual funds allocate more
than 65% in equities and the rest in debt.
HDFC Prudence Fund has registered +4%, +25% and +13% of CAGR returns for one, three and five year
periods while the benchmark CRISIL Balanced Fund - Aggressive Index posted +5%, +14% and +10% of
returns respectively. For the same period, the category clocked +5%, +21% and +13% of returns
respectively.
The average performance of the scheme during the last three to four years may be attributable to some
of the calls taken by the fund manager such as betting more on PSU Banks and old economic stocks
which might not have worked out in the past. Undoubtedly, the fund manager of the scheme Mr.
Prashant Jain is one of the renowned fund managers in the fund industry on delivering better returns.

Fund Performance Vis-a-vis Benchmark (Excess return):

Portfolio: SBI, ICICI Bank and L&T are the stocks that topped in its latest portfolio having weights of
6.10%, 5.91% and 4.62% to its net assets respectively. The scheme has maintained its allocation into
equity and debt in the ratio of 70:30 over periods. As per the latest portfolio, the scheme saw allocated
close to 75% in equity assets. Considering the market capitalization allocation, the scheme witnessed
exposing relatively higher into mid and small cap stocks compared to peers.
In the last six month period, the scheme added 9 new stocks and exited from 8 stocks. The Turnover ratio
of the scheme stood at 128%.
The expense ratio of 2.26% for the scheme is lower compared to the category average of 2.64%. The
corpus of the scheme as per latest data (Mar 2016) was at Rs. 7,773 crore.
As far as risk measures are concerned, the scheme seems to be risky while compared to peers as it
generated 17.39% (category 12.97%) of Annualized Standard Deviation that calculated from monthly
returns for last 3 years period.

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History of HDFC Prudence Fund:

Launched as Centurion Prudence Fund in January 1994, it was renamed as Zurich India Prudence Fund and finally HDFC Prudence Fund in June 2003.

HDFC Prudence Fund is today one of the largest balanced funds in India with an AUM of INR 9,357 crores as on June 31,2016.

In this journey of over 22 years, Rs10,000 has become ~Rs4.56 lacs at CAGR of ~18.09%.

Salient Features of HDFC Prudence Fund:

Prudence being a balanced fund, invests in both equities and in debt.

Asset Allocation between equities/debt is a function of valuations, growth outlook, interest rates etc.

Equity strategy

Clear long term focus.

Multi cap strategy, flexibility to invest in mid / large cap stocks.

Sound quality companies.

Effective diversification of portfolio.

Debt Strategy

Portfolio duration is actively managed based on outlook for interest rates with a 2-3 year view.

Strong preference for good credit quality.

Dividends History:

The Fund has paid dividends in each of last 18 years (since 1999 when fund turned open ended).

Total dividends paid in last 18 years aggregate to Rs 57.1 per unit.

The dividend frequency has been changed to monthly dividend since January 2016.

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Relative performance of the Scheme:
Point to Point and Rolling returns of the scheme versus peers and benchmarks over the various time frames:

Scheme Name

HDFC Prudence Fund - (G)

L&T India Prudence Fund (G)
HDFC Balanced Fund (G)
Tata Balanced Fund - Regular (G)
Birla Sun Life Balanced '95 Fund (G)
Benchmark:
Average of Hybrid - Equity Oriented Funds
Nifty 50
CRISIL Balanced Fund - Aggressive Index
NAV as on August 03, 2016.

Equity
Exposure (%)
as per the
latest
Portfolio

Latest
Corpus
(Rs Crs)

Scheme's
Age (Yrs)

M Cap break-up (%)

in Equity portion

Expense
Ratio
(%)

Trailing Returns (%)

23
5
16
21
22

9357
2143
6207
6281
3140

75
70
71
71
69

62
76
71
77
76

35
22
28
23
24

3
2
1
0
0

6
Months
Absolute
2.26
2.49
2.09
2.24
2.45

71

79

19

2.64

Largecap

Mid &
Small cap

Rolling Returns (%)

1
Year
CAGR
17.11
12.34
15.58
13.57
16.67

3
Year
CAGR
4.03
6.16
7.09
5.28
9.21

5
Year
CAGR
24.97
24.75
26.31
25.16
24.42

6
Month
Absolute
10.29
7.23
10.38
9.96
9.24

1
Year
CAGR
22.61
18.13
22.52
21.75
20.26

2
Year
CAGR
18.42
20.62
19.17
17.59
16.68

3
Year
CAGR
16.00
20.97
16.68
15.44
14.67

13.80

5.03

20.77

7.37
6.82
5.73

15.98
14.57
12.30

13.54
10.70
10.12

12.10
9.32
9.33

Annualized
Standard
Deviation
17.39
12.28
12.95
13.51
12.93
12.68

Relative performance during various equity market cycles:

Relative performance during various interest rate cycles:

The scheme has been an outperformer during bull-run but relatively underperformer
during bear run.

The scheme benefited the most during falling interest rate scenario between Nov
13 and Feb 15.

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Portfolio Positioning:
Portfolios asset allocation break-up over periods:

Top ten stocks held by the scheme:

Equity Portfolio Sector break-up of the scheme over periods:

Portfolio Market cap break-up over periods:

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Risk as measured by Standard Deviation (Ann) calculated monthly from last 3 Yrs periods:

Relatively higher allocation into mid and small cap stocks as comparison to peer schemes has made the scheme assuming higher risk (based on standard deviation) among the peers.
Dividend History of the HDFC Prudence Fund in last 18 years:

For May, June and July months, HDFC Prudence Fund has declared dividend per unit in rupee term of Rs. 0.30 each.
Since Jan 2016, the funds dividend frequency has been changed to monthly dividend and the scheme has so far (over the past 4 months excluding Feb 2016) been paying 1% of NAV
as dividend which would result in offering close to 10-12% of tax-free dividend per annum in the hands of investors (provided the NAV does not see a dip on point to point
comparision). This can be an attractive investment destination for the investors with medium risk profile and wanting regular monthly income and to hold for at least 3-5 years.

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Relative performance of the top quartile funds from Hybrid Equity oriented category based on year on year returns (calendar year):

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Dividend Yields (%) of the schemes from Hybrid Equity Oriented Funds which are having Monthly option for the last one year period:
Name
DSP BR Balanced Div (M)
HDFC Prudence Div (M)
ICICI Pru Balanced Div (M)
ICICI Pru Balanced Advan Div (M)
Kotak Balance Div (M)
L&T India Prudence Div (M)
Sundaram Balanced Div (M)
Tata Balanced Div (M)

Aug-15

0.68
0.60
0.68
0.36
0.65

Sep-15

0.59
0.62
0.36
0.69

Oct-15

Nov-15

0.66
0.58
0.61
0.36
0.66

0.67
0.59
0.63
0.36
0.67

Dec-15

0.68
0.60
0.48
0.62
0.37
0.67

Jan-16

1.02
0.71
0.61
0.50
0.24
0.39
0.63

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

1.02
7.88
0.59

1.01
1.12
0.57
0.31
0.49
0.42
0.38
0.66

1.00
1.07
0.55
0.60
0.47
0.47
0.37
0.65

0.98
1.10
0.56
1.20
0.48
0.47
0.37
0.67

1.00
1.06
0.54
1.48
0.53
0.46
0.35
0.65

0.98
1.00
0.52
0.87
0.50
0.44
0.61
0.61

0.54
0.39
0.63

Note: The NAVs over a period can at times fall more than the dividends declared during the period depending on the market situation in equity and debt markets. In case of exits in short term, there is a
possibility of loss of principal.

ISIN Code for the options of the HDFC Prudence Fund:

Option of the Fund
HDFC PRUDENCE FUND - DIVIDEND REINVESTMENT
HDFC PRUDENCE FUND - DIVIDEND PAYOUT OPTION
HDFC PRUDENCE FUND - GROWTH OPTION

Analyst: DhuraivelGunasekaran (dhuraivel.gunasekaran@hdfcsec.com)

ISIN
INF179K01AU0
INF179K01AT2
INF179K01AV8

Source: NAVIndia.com & ACEMF

RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate Office
HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Website: www.hdfcsec.com Email:
hdfcsecretailresearch@hdfcsec.com.
Disclaimer: Mutual Funds investments are subject to risk. Past performance is no guarantee for future performance.This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or
copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and i t should not be relied upon as
such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non-Institutional
Clients.
This report has been prepared by the Retail Research team of HDFC Securities Ltd. The views, opinions, estimates, ratings, target price, entry prices and/or other parameters mentioned in this document may or may not match or may be contrary with those of the other Research teams
(Institutional, PCG) of HDFC Securities Ltd. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475.

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