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Issue Summary

Type Open ended Nature MIP Entry Load 1.00% (waived off in IPO) Exit Load 1.00% (exit before 12 mths) Min. Investment Rs 5,000 Face value Rs 10 Issue Opens Aug 20, 2004 Issue Closes Sept 10, 2004

Investment Objective

To generate positive returns over medium time frame with low risk of capital loss. Instruments Normal Allocation Equity 15% Fixed Income securities 85%

Is this fund for you?

HDFC Multiple Yield Fund will invest predominantly in fixed income securities and partially in equities and to that extent it is suitable for investors with a limited risk appetite. Typically, such investors prefer a semblance of predictability in their returns and HDFC Multiple Yield Fund offers them that option. However, there is a rider to it - investors would have to be invested in the fund through a period of approximately one year (i.e. the maturity of the bond). This is because in the interim period, the fund could witness above-average volatility in its debt component particularly in the present scenario when the fear of rising inflation and harder interest rates looms large. The fund falls in the MIP (hybrid) category given its portfolio strategy to invest largely in fixed income securities and partly in equities. However, the only difference is that the degree of predictability is higher given that HDFCMY will invest its debt portion in one paper that it will hold till maturity and its equity investments will be made in 'primarily in moderate to high dividend yield stocks'.

Portfolio Strategy

The fund has indicated that it will 'normally invest 85 per cent (maximum 95 per cent) of the portfolio in debt and money market securities and 15 per cent (maximum 25 per cent) in moderate to high dividend yield stocks. Normally, the fund will invest 85 per cent of its assets in debt securities. The debt portion of the portfolio will invest primarily in bonds maturing in around one year's time. The fund will not rebalance the portfolio until only a minimal portfolio maturity is left. For instance, if the portfolio matures in September 2005, it will buy fresh paper only in August 2005. Normally, the fund will invest 15 per cent of its portfolio in equities. The investments will be made primarily in moderate to high dividend yielding stocks of well-managed companies where dividends are expected to be maintained or grow. With a combination of a 'fixed maturity paper' and high dividend yielding stocks the fund will attempt to enhance the yield of the portfolio considerably at considerably lower risk.

Fund Manager 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. Mr. Shobhit Mehrotra (Head-Fixed Income) is an experienced debt fund manager. He was earlier in Franklin Templeton Investments before joining HDFC Mutual Fund in 2004.

Outlook

The fund's strategy to invest in debt securities over a year and maintain portfolio maturity till the final stages appears sound in this volatile interest rate climate. However, in the interim period it could witness volatility. If the sentiment in the stock markets also remains negative, it will further depress the NAV of the fund. However, volatility in the fund's debt component will decline with time as shorter maturity paper is spared the blunt of interest rate volatility. At any rate, investors in the fund should look at remaining invested over the year to benefit from 'locked yields' and an upturn in equity markets.

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