Summary

Type	Open-ended hybrid	Benchmark	CRISIL MIP
Min. Investment	Rs 5,000	Face Value	Rs 10
Entry Load	Nil*	Exit Load	1.00% (max.)**
Issue Opens	July 11, 2005	Issue Closes	July 26, 2005
* 1% in post-New Offer period    ** on exit before 15 months

Investment Objective

To generate positive returns over medium time frame with low risk of capital loss. However, there can be no assurance that the investment objective of the fund will be achieved.* *Source: Offer document

Is this fund for you?

HDFC [Get Quote] Multiple Yield - Plan 2005 attempts to lower interest rate risk in its debt investments by locking the yield of the debt paper at the time of launch. This reduces the element of uncertainty in the fund's performance to a large extent (debt accounts for 85 per cent of its assets). The fund will attempt to generate additional return by investing upto 15 per cent (maximum) of its assets in steady, dividend yield stocks. According to the fund's estimate it can get a 6.0 per cent yield on 1-Yr debt paper. Over a 15-month period, the yield is in the region of 7.5 per cent. For the equity portion, the fund estimates a dividend yield of 7.0 per cent. According to the fund's calculation, in a worst-case scenario if equity markets had to slump by 20 per cent, it will generate a return of 3.79 per cent. In a best case scenario should equity markets rise by 20 per cent, it can generate a return of 8.94 per cent. Below we reproduce the table that has been made available by HDFC Mutual Fund:   Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Debt yield 7.50% 7.50% 7.50% 7.50% 7.50% Dividend yield (stocks) 7.00% 7.00% 7.00% 7.00% 7.00% Equity market returns -20% -10% 0% 10% 20% Asset mix returns (Annualised) 3.52% 4.71% 5.90% 7.08% 8.26% Asset mix returns (over 15 months) 4.43% 5.93% 7.43% 8.93% 10.43% (Expenses not considered in the estimate. 1-Yr bond yield assumed at 6%. Yield estimate based on 15-month time frame.) In our view, the fund is ideal for investors with a lower risk appetite, who would like an element of certainty in their fund's performance. Since HMY will be investing largely in debt instruments, the yield on which is known at the time of the launch, there is a degree of certainty in the fund's performance. Apart from resident Indians, low-risk non-resident Indians who presently are being offered unattractive returns on deposits can consider investing in the fund. Even if we factor in the currency risk, the return generated by the fund is more attractive than that of comparable investment avenues.

Portfolio Strategy

The fund will maintain an 85 per cent debt allocation, with the balance 15 per cent in equities. The debt fund will be managed passively. The fund will invest in debt paper maturing in 15 months in line with the 15-month time frame recommended for investors of this fund. The fund will not buy or sell debt paper on an ongoing basis. In this way, the yield on the paper is locked and the fund will generate returns in line with the yield. The fund will buy additional debt paper only towards the end when the existing paper is near maturity. Instruments Normal Allocation Fixed Income securities 85% Equity 15% On the equity side, the fund will target 'moderate to high dividend yield stocks'. With the benefit of a 15-month period, the fund expects to benefit from two dividend payouts. During times of turbulence in stock markets, the fund has the option to invest in cash/current assets.

Fund Manager Profile

Anil Bamboli will manage the debt component of HMY. He is Senior Fund Manager at HDFC Mutual Fund and manages the HDFC High Interest Fund, the HDFC Short Term Plan and all the Fixed Maturity Plans. Before joining HDFC Mutual Fund, Bamboli managed SBI [Get Quote] Funds Management Pvt. Ltd's debt schemes. Bamboli is a charter holder of the Certified Financial Analyst from the CFA Institute, USA. He also possesses a MMS degree from University of Mumbai. Tushar Pradhan (Sr. fund manager) will manage the equity component of HMY. He holds an MBA degree from the University of Hartford, USA. Before joining HDFC Asset Management Company, he was associated with HDFC Ltd. At HDFC he handled various investment advisory functions in the treasury department. He manages HDFC Capital Builder, HDFC Long Term Advantage (earlier HDFC Tax Plan), HDFC Sensex Plus among other funds.

Outlook

The biggest positive of the fund is that there is an element of certainty in its performance (though there can never be 100 per cent certainty that the fund will achieve its objectives). Moreover, since the fund will be taking on lower interest rate risk by pursuing a passive debt investment strategy, it will not be impacted significantly by volatility in debt markets. However, the fund will be exposed to the risk of equity-related investments to the extent of 15 per cent of net assets. If this component witnesses above-average volatility, it could disturb the fund's overall performance. Overall, the scheme has the potential to offer an attractive, risk-adjusted return that should appeal to a broad category of investors.

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