Mutual Funds

HDFC Children’s Gift Fund: For the long haul

Radhika Merwin | Updated on November 17, 2018 Published on November 17, 2018

The compulsory lock-in helps create a corpus for long-term goals

In accordance with SEBI’s categorisation norms, child plans that fell under the hybrid category — equity and debt-oriented — now come under a rigid and distinct category. Falling under SEBI’s solution-oriented funds, children funds have a compulsory lock-in feature that brings uniformity across funds within this category. Earlier, most funds had a lock-in (optional) of three years from allotment or till the child attained the age of 18, whichever was later. Now, as per SEBI’s norms, the lock-in is compulsory — the earlier of five years from allotment, or attaining the age of 18.

As the name suggests, these funds are ideal for setting aside money for long-term targets. The compulsory lock-in helps create a corpus for the long haul.

For investors with a moderate risk appetite, HDFC Children’s Gift is a good quality fund, delivering 2-4 percentage points above category, across periods. The fund — an equity-oriented hybrid fund that invests predominantly, 65-75 per cent, in equities — has not seen any drastic change post the SEBI diktat, but for the lock-in features.

You can invest in the fund only in the name of a minor (less than 18 years old). The fund also carries a personal accident insurance cover for the parent/legal guardian (up to the age of 80 years), equal to 10 times the cost value of the outstanding units held by the unit-holder, a maximum of ₹10 lakh per uni- holder. The insurance premium is borne by the AMC.

Given the volatility in the equity market, investors can invest in the fund through the SIP route.

Consistent performer

HDFC Children’s Gift brings the best of two worlds — equity and debt — offsetting underperformance in one with healthy performance in the other. In the lacklustre 2011 market, for instance, when the Sensex lost about 24 per cent, the fund managed to contain losses at 7-odd per cent. The fund has also been able to cash in on rallies. In 2014, as both equity and debt markets zoomed, the fund delivered a handsome 43 per cent return.

But for 2015, when it delivered returns tad lower than its category average, the fund has been a consistent performer, delivering about 19 per cent annual return over a 10-year period.

The fund invests 65-75 per cent in equities. Of its equity portfolio, large-cap stocks (as per AMFI classification) have constituted 55-60 per cent over the past three years, mitigating risks in volatile markets. The fund also carries a portfolio of over 60 stocks with under 3 per cent exposure in a single stock (barring bluechips HDFC Bank and Reliance Industries where it holds 5-6 per cent).

Guarded approach

On the debt side, too, the fund follows a conservative approach, investing predominantly in G-Secs and top-rated bonds. Currently, the fund has invested 10.9 per of assets in government bonds. In the AA+ category of bonds, the fund has about 4.5 per cent exposure to papers of Axis Bank and SBI.

HDFC Children’s Gift currently sits on a notable cash position (about 17 per cent of assets). This should help it tide over the current volatile market.

The fund also carries among the lowest expense ratios within the category, at 2.2 per cent. Savvy investors can invest through the direct plan that carries a lower 1.3 per cent expense ratio, which will help boost returns.

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