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Aarati Krishnan

INVESTORS in the HDFC Sensex Plus Plan can hold on to their investments in the fund. In the 10 months since launch, the fund has generated significantly higher returns than the BSE Sensex, while investing the bulk of its portfolio in Sensex stocks.

Given that the fund is yet to complete a year of operations, fresh investments in it need not be contemplated now.

The Sensex Plus Plan is an index-linked fund which seeks to lower the risks of investing by closely mimicking the Sensex, with 80-90 per cent of the portfolio consistently invested in Sensex stocks. However, the fund managers do have the flexibility to pick stocks outside the Sensex for the remaining 10-20 per cent of the assets. This feature is added to make sure that investors in the fund do not completely lose out on good opportunities arising outside of the Sensex basket.

On a point-to-point basis since launch, the fund has lost 0.6 per cent in value; while the BSE Sensex has suffered a significant value erosion of 6.9 per cent. The fund has also delivered substantially better returns than HDFC's passive index product-the HDFC Sensex Plan, which has suffered a value erosion of 3.5 per cent since launch.

Suitability: With a number of actively managed funds outpacing the narrow indices such as the Sensex and the Nifty, index investing per se does not appear to be an ideal option.

But given the limited choice of diversified equity funds with a consistent track record, investors may consider index funds as a diversification option.

The HDFC Sensex Plus Plan may be suitable for investors who are seeking slightly higher returns than possible from passive index funds, but are not willing to leave stock picking entirely in the hands of the fund manager.

Performance: The fund has managed to generate better returns than the Sensex both during the bullish and bearish phases since launch.

The fund's investment in non-Sensex stocks has varied between 10 per cent and 12 per cent of its assets.

In addition, the fund has also retained 2-7 per cent of its assets in liquid and call money assets. This could also have helped protect the NAV against downside in a falling equity market.

This apart, there appears to be two other factors behind the fund's outperformance of the Sensex.

In the portion of its portfolio that mimics the Sensex, the fund has retained marginally underweight or overweight positions in the individual stocks.

The non-Sensex portion of the portfolio has also been quite actively churned and has featured stocks such as ONGC and Union Bank, which have bolstered performance.

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