Summary

Type	Close-ended equity (diversified)	Benchmark	S&P CNX Nifty
Min. Investment	Rs 5,000	Face Value	Rs 10
Entry Load	Nil	Exit Load	4.00% (max.)*
Issue Opens	December 30, 2005	Issue Closes	January 27, 2006
*4.00% in Year 1; thereafter reduces by 1% every year to 0% in Year 5

Investment Objective

The primary objective of the scheme is to achieve long term capital appreciation. However, there can be no assurance that the investment objective of the scheme will be achieved.* *Source: Offer document

Is this fund for you?

Close-ended funds seem to be the flavour of the season. Recently we saw the launch of Franklin India Smaller Companies Fund (FISCF), which was a close-ended fund mandated to invest in mid and small companies. With fund houses getting more focused on long-term investing, new fund offers (NFOs) of close-ended diversified equity funds have started hitting the market. Do investors really stand to gain by investing in close-ended funds? In our view they can. It is a well-documented fact that equities are best equipped to deliver returns over the long-term (at least three years in our view); conversely, equities can be the most volatile asset class over shorter time frames. By locking investors monies for the long-term (like 5 years), close-ended funds ensure that investors can enjoy the benefits of equity investing. Similarly, the fund manager can make long-term bets and afford to be indifferent to short-term market occurrences. This is where close-ended funds score over their open-ended counterparts. HDFC Long Term Equity Fund (HDFC LTEF) is a close-ended diversified equity fund which professes to deliver the benefits of long-term investing. What differentiates the fund from FISCF is its diversified nature. Unlike FISCF which was mandated to invest only in stocks from the mid and small cap segment, HDFC LTEF is a 'true blue' diversified equity fund with a mandate to invest in stocks across segments. Investors with an appetite for high risk investment avenues can consider adding the fund to their portfolios. Considering the fund's close-ended nature, only that portion of their investible surplus which has been reserved for long-term investments should be invested in the fund.

Portfolio Strategy

HDFC LTEF's portfolio will comprise stocks which will have the potential to appreciate over the long-term. The fund house has indicated that it will "build a portfolio that adequately reflects a cross section of the growth areas of the economy". Hence investors can expect stocks from across market segments i.e. large caps and mid caps to feature in the portfolio. Also, the 'buy and hold' style will be the cornerstone of its investment strategy. Instruments Normal Allocation Equities 70%-100% Debt (including money market instruments) 0%-30% HDFC LTEF is mandated to invest between 70%-100% of its assets in equities; it can hold upto 30% in debt/money market instruments. The provision to invest in debt can prove to be beneficial during a downturn in equity markets.

Fund Manager Profile

Mr. Tushar Pradhan is a Senior Fund Manager with HDFC Asset Management Company Limited. He holds an MBA degree from the University of Hartford, USA. Before joining HDFC AMC, Mr. Pradhan was associated with HDFC Ltd. where he handled various investment advisory functions in the treasury department.

Outlook

HDFC Mutual Fund is among the premier fund houses in the country and its equity-oriented offerings like HDFC Top 200, HDFC Equity and HDFC Prudence have ranked consistently among the best in their peer groups. Investors can expect HDFC LTEF to benefit from fund management skills of the same pedigree. However, the following factors need to be considered before making an investment decision. HDFC LTEF is a high risk investment proposition and only investors with a commensurate risk profile should consider adding the fund to their portfolios. The fund is close-ended in nature; hence your investment tenure must necessarily match that of the fund. Pre-mature withdrawals will attract a steep exit load. Finally, investors would do well to select the growth option, if they wish to maximise the benefit of investing in the fund. DOWNLOAD REPORT (PDF)   Looking to invest? Meet a Personalfn consultant today! Download form | Why Personalfn? Ahmedabad 6450-5215 Bangalore 6535-9899 Chennai 6526-2621 Chandigarh 653-5304 Hyderabad 6591-8423 Jaipur 650-1396 Mumbai 6799-1234 New Delhi 6450-5302 Pune 6400-2434 Click on the city name to write to us

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