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Are you saving for your child's future but cannot take high exposure to equities at this point? Then, HDFC Children's Gift Savings Plan may be a superior option to traditional debt options if you have a time span of not less than three years. The fund is one of the top performers over three and five-year periods in the debt-oriented category.
With an exposure of about 20 per cent to equities and rest in debt, this debt-oriented fund has delivered an annual return of 9.9 per cent in the last three years, higher than the 8.4-8.9 per cent returns generated by some of the top MIP funds. Its benchmark Crisil MIP Blended index managed an annual return of 7.5 per cent during this period.
Suitability
Please recall that we recommended HDFC Children's Gift – Investment Plan, an equity-oriented balance fund in our October news letter. HDFC Children's Gift – Savings Plan is a sister fund but with majority exposure to debt. Which one should you choose?
The equity fund (Investment Plan) is suitable if you have a longer time frame of say 5-10 years and you are not averse to taking high exposure to equities. The Savings Plan, on the other hand, is more suitable if you have limited time frame of say less than five years (which does not allow you to take too much risk) or you simply want to find an option that would provide superior returns to traditional debt products.
You can also hold the Saving Plan scheme with a combination of other equity funds, as its debt-laden portfolio will provide some hedge. It can also deliver returns higher than regular debt in times of an equity rally.
There are two options that this scheme offers: one, without a lock-in period and two with a lock-in of three years or until the child reaches 18, whichever is later. You can opt for the option without lock-in.
Even then, please note that this fund discourages early exits with high exit loads up to three years from the date of investment. In all, it is ideal that you have not less than a three-year view when you invest in this fund.
You can invest in this fund only in the name of a minor. At FundsIndia, you can invest in this fund only through a minor account.
Performance
A lump sum investment in HDFC Children's Gift – Savings would have delivered a compounded annual return of 9.5 per cent in the last 5 years. An SIP in the fund would have generated a superior 10.5 per cent IRR over the above period.
The fund's three-year rolling return (since launch in 2001) is at a compounded annual rate 9.9 per cent.
That means had you invested at point in time since the fund's inception, your three-year return would have averaged at close to 10 per cent. This is higher than Reliance MIP's average of 8.5 per cent as well as superior to other sister funds such as HDFC MIP LTP and HDFC Multiple Yield Plan 2005.
Portfolio
HDFC Children's Gift – Savings Plan has put up a better show than peers by predominantly sticking to a buy and hold strategy.
In the last couple of years, the fund, for most part, had an average portfolio maturity of 2-2.5 years. That means, the instruments it held had an average term of two years-plus. But in the last one year, the fund has been upping its maturity to reach 3.6 years, perhaps to take advantage of the high yield instruments on offer over this period.
Holding these instruments till maturity will provide interest income. But in the last one year, such a hold strategy could have led to the fund underperforming a couple of peers. But then, its risks too are far lesser as a result of not playing the timing game.
As of December, a fifth of its portfolio was in government securities with yield of 8.12-8.2 per cent and about one half of its assets in AAA-rated corporate bonds debentures from companies such as LIC Housing Finance, PFC, IRFC and HDFC. These instruments had yields ranging from 8-11 per cent. The fund's equity portfolio had a mix of large and mid-cap stocks with more weight for the latter.
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