Investors can consider adding units of HDFC Children's Gift- Savings plan (HDFC Children), a debt-oriented balanced fund, to their portfolio.

HDFC Children is among the top performing balanced funds over one-, three- and five-year time-frames. HDFC Children invests a maximum of 20 per cent in equity securities to boost returns of the overall portfolio, given the modest returns from debt.

In the last five years, HDFC Children gave a 9 per cent annualised return outperforming its benchmark Crisil MIP Blended Index by 2 percentage points.

Short-term rates, which fell marginally in recent times, may remain attractive as the liquidity crunch has eased a bit. For instance, the three-month commercial paper rates have fallen by 1.2 percentage points to 9.35 per cent in the last month. The long-term yields, on the other hand, continue to hold up. This would mean that the steep fall in bond prices is behind us and the prices of debt instruments may be stable or rise in the medium term. Therefore, it is a good time to start a systematic investment plan in HDFC Children.

Suitability : The fund is suitable for investors with limited risk appetite who intend to build a savings kitty for their children. Investors can go for the no-lock-in option. This option will still carry exit load for premature exit within 3 years of investment. There will be no exit load for redemptions made after three years.

It is noteworthy that the while the fund recorded better returns than debt funds, historically, it has lost value on a one-year rolling return basis during the credit crunch (from October 2008 to March 2009). It nevertheless managed downside better than most of the monthly income plans and peers.

Portfolio and Performance : The fund has invested 19.1 per cent in equity with 15 per cent of the total exposure coming from small and mid-cap stocks. Volatility arising from small and mid-cap stocks, though, is mitigated by exposure to relatively defensive sectors such as consumer goods, pharma and IT.

The debt portfolio predominantly holds investment-grade corporate debentures, which account for 53 per cent of the total portfolio. The fund has been adopting a buy-and-hold strategy in most cases in equity and debt. Exit load for redemptions up to three years is also one way of dissuading frequent exits; thus making it easier to adopt a buy-and-hold strategy. The fund returned 11 per cent annually over a three-year period, against the category average return of 7 per cent. On a one-year rolling return basis the fund has outperformed its index 80 per cent of the time in the last three years.

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