Fresh investments can be considered in units of debt-oriented fund, HDFC MIP Long-term Plan. The fund has compensated investors with superior returns for the additional risk undertaken, compared with other debt options. With a maximum of 25 per cent exposure to equities, the fund has delivered an annualised 12.6 per cent return over the last three years. It significantly outperformed its benchmark CRISIL MIP Blended Index (6.6 per cent) as well as the category average of 8.1 per cent over the above period.

HDFC MIP is the second best performer next only to Reliance MIP in the MIP category over a three-year and five-year period. However, the latter has lagged HDFC MIP in the last one year. With fixed-income instruments looking favourable again, especially with long-term rates near their peaks, any reversal of interest rates over a medium-term could trigger a rally in prices of debt instruments, thus favouring investor's holdings. HDFC MIP with its consistently superior record is a good choice at this juncture.

Suitability

The fund is suitable for investors looking for inflation-beating returns in the current inflationary scenario while protecting downside risks to some extent. While MIPs seeks to pay out dividends regularly (under the payout option), they are not obliged to do so. Investors should not, therefore, view it as a regular source of income. Given its equity exposure, the fund can move to the negative return zone during prolonged stock market corrections. On a one-year rolling return basis, the fund generated negative returns only 17 per cent of the time in the last three-and-a-half years. For a good part of this period, both the equity and debt markets underperformed.

Nevertheless, the fund provides reasonable hedge to a portfolio laden with equities. In the current market correction, which began in November 2010, the BSE Sensex index lost 9 per cent. HDFC MIP, during the same time period, managed to hold on, albeit remaining flat.

Portfolio and Performance

As of March 2011, the fund held as much as 73 stocks as part of its equity exposure.

The debt portfolio has a diversified mix of sovereign debt, money market instruments and corporate debentures. Given the current high interest rates in commercial paper and certificates of deposits, HDFC MIP has invested a good 34 per cent of its funds in these instruments. The portfolio maturity has been fluctuating; which is indicative of the active management of the portfolio. A large asset size has helped deployment across instruments with varying maturities.

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