Should you invest in HDFC Mutal Fund?

The fund is suited for investors with an appetite for risk i.e. equities. The fund will be predominantly invested in blue chip stocks, which will form the core, and partly in small sized companies. This makes us categorise the risk profile of the fund as moderate within the equity fund category.

Another factor that lends the fund a moderate risk profile is its objective to target the 'core' stocks that are trading at a discount to their intrinsic value. This has shades of value investing, which means that the fund is averse to making risky calls to the extent of 60-80 per cent of its core portfolio.

Investors who already own large cap diversified equity funds, can consider investing a portion of their assets in the HDFC Core and Satellite Fund given the potential to clock above-average return through (20-40 per cent) investments in small/mid cap companies. Investors must look at investing in the fund with a time frame of at least 3 years.

The fund has indicated that it will invest 60-80 per cent of its assets in 'well-established companies that would predominantly include large cap stocks'. These will form the 'Core' of the portfolio. The Core will include companies that have a long and successful track record of stable earning and/or dividend growth, companies with a leadership position (say top 3 in a sector) and companies that are available below their intrinsic value. The Core will be spread across 10-20 companies, with exposure to each stock being 3-8 per cent of the overall portfolio.

The balance 20-40 per cent of the portfolio will be invested in small/mid sized companies with a potential to deliver higher growth (vis-à-vis the Core), but at higher risk to the investor. Investments in these companies, called the 'Satellite', will be diversified across 10-20 stocks and the average exposure per company would be between 1-4 per cent of the total assets. In our view, the two components - Core (moderate risk-return) and Satellite (high risk-return) give the overall portfolio a moderate risk-return investment profile.

Mr. Prashant Jain, Chief Investment Officer, joined HDFC Mutual Fund consequent to the acquisition of Zurich Mutual Fund in 2003. He was earlier the Chief Investment Officer at Zurich India Mutual Fund. He has 12 years of investment management experience. He has a Masters degree in Business Management from IIM, Bangalore. He has also obtained a Bachelors degree in Mechanical Engineering from IIT, Kanpur and done his CFA from AIMR, USA.