A stable performer

FUND PICK/ HDFC Floating Rate ST

Background: HDFC Floating Rate ST was launched in January 2003. There is no entry or exit load for the fund. The minimum investment is at Rs 10,000 and subsequent investments should be in multiples of Rs 1,000. The fund offers growth and weekly dividend options.

Performance: The fund has been one of the top performers in its category, especially in the past six months. It provides stable returns from a high-quality portfolio. For the year ended September 24, it has provided the same returns as the category average of 4.6 per cent.

But its three-month returns at 1.13 per cent are better than the category average of 1.10 per cent. Its returns in 2004 at 3.24 per cent are also better than the average floating rate fund's 3.16 per cent.

More importantly, the fund's best and worst return over any one-month period has been 0.48 per cent and 0.35 per cent respectively, implying that it has been successful in preserving capital.

Portfolio: For most of 2004, the fund's average portfolio break-up has been 20 per cent in AAA-rated bonds, 21 per cent in P1+-rated commercial papers and the rest in term deposits and money market instruments.

This indicates that its portfolio quality is high. At present, the fund has only 27 per cent of its holdings in floating-rate instruments. Its average maturity has ranged between 0.52 and 0.81 years.

The fund has the second-lowest expense ratio in the category (0.56 per cent) and is efficient in transferring the returns it generates to its investors.

Outlook: Floating rate funds are a good option for investors wishing to protect themselves from an increase in interest rates. This fund is a good choice in terms of quality and lower costs.

- Value Research