HDFC Top 200, HDFC Equity: To Quit or not to Quit
Investors are disappointed with HDFC Mutual Fund, they had invested in these schemes based on good fund house, good scheme and their Fund manager Prashant Jain comes with a good track record. But its performance over recent past not well, but can they ignore the fact that the fund house has a sound 20-year track record . Questions which are going through investor mind are :
- Whether investment in HDFC Top 200 or HDFC Equity should be continued?
- What to do with accumulated corpus in HDFC Top200 or HDFC Equity Fund? Should one redeem it or should wait for NAV to appreciate?
- Why are HDFC Funds like HDFC TOP 200, HDFC Equity not performing well?
Performance of HDFC Funds
Equity schemes such as HDFC Top 200, HDFC Equity and HDFC Growth account for Rs 21,000 crore of retail investors’ money, which is almost 13 per cent of the total equity assets managed by Indian mutual funds. HDFC Top 200 Objective is To generate long term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index. It has been around since October 11, 1996
- HDFC Top 200 scheme, which has a corpus of Rs 10,300 crore, has returned – 4.15% year-to-date (YTD), against the CNX Nifty’s 3.12 % return during the period,
- HDFC Equity, which manages assets of Rs 9,700 crore, has returned – 6.57 % YTD, much to the disappointment of investors.
But over a longer time frame, these schemes have a sound track record. Both HDFC Top 200 and HDFC Equity have posted over 20 per cent annualized returns over a 10-year time frame, beating the category average of 16% annualised and the CNX Nifty’s gains of 15% annualised during the period.
How are funds rated?
Most of rating agencies rate only those schemes that are older than three years and have a corpus of above Rs 5 crore. They takes monthly returns into account. For each month it calculates the risk-free rate—returns over and above the risk-free rate of return. For instance, if the risk-free return (say, a short-term fixed deposit, where the risk potential is virtually zero) is, say, 7% and the fund’s return is 10%, the risk-free rate of return is 3% (10% less 7%). Returns of all the months are averaged out and a “return score” is arrived at.
Similarly, a risk score is arrived at by adding all negative risk-adjusted returns (those months where the fund’s returns were less than the risk-free instruments) and dividing it by 36. The risk score, subtracted from the return score gives the ratings score for a three-year period. Similarly, a five-year rating score is also arrived at for those schemes that are at least five years old.
For schemes that are at least five years old, Value Research assigns 60% weightage to its five-year rating score and 40% to the three-year rating score. For schemes that are more than three years old but less than five years, 100% weightage is assigned to its three-year rating score. Ref Livemint
Why funds do not perform well?
Past performance may or may not be sustained in the future says any mutual fund-related literature. The investment environment is constantly changing with respect to government policies, interest rates, disposable income, inflation and also economic growth. And all these factors have a bearing on the performance of mutual funds, stocks, bonds, gold, real estate, etc, so the sectors or stocks. The reasons for which a product performed well the previous year have almost certainly been replaced by a new set of factors, some of which are completely different to each other. For example In 2007, Reliance Vision was among the most highly recommended diversified equity funds. Today, it is floundering, having consistently under-performed its benchmark in the past 1, 3 and 5 years.
Different sectors outperform at different times. FMCG and pharmaceuticals, for instance, are known to be defensives and do well during recessionary phases. On the other hand, sectors such as capital goods and commodities do well during bull runs. For instance, infrastructure funds, at the helm during the bull run of 2007, fell flat after the financial crisis that began in late 2008 with many languishing in the bottom quartile today. More at our article Not All Mutual Funds Do Well -the Laggards
Why ratings for HDFC funds dropped?
Investment objective of HDFC Top 200 is The scheme seeks capital appreciation and would invest up to 90 per cent in equity and the remaining in debt instruments. Also, the stocks would be drawn from the companies in the BSE 200 Index as well as 200 largest capitalised companies in India.As on Sep 30, 2013 it has 64 stocks with 56.50% in Giant companies,21.13% in Large companies and its top holdings are in Finance,Energy,Technology sectors with individual holdings given below.
|Tata Consultancy Services||Technology||4.95|
|Tata Motors DVR||Automobile||4.60|
|State Bank of India||Financial||4.50|
|Larsen & Toubro||Diversified||4.29|
An analysis of the portfolio selection of these schemes shows that heavy exposure to Banking and Finance, Oil & Gas, Auto and Engineering has resulted in them underperforming broader markets. High single stock exposure to banks such as SBI and Bank of Baroda in the financial sector and companies operating in core sectors such as L&T, Rural Electrification, Tata Steel, Bharat Electronics, Coal India, Jaiprakash Power Ventures and Jaiprakash Associates, which have delivered double-digit negative returns in this year, has contributed further to the loss. Some index heavy consumer non-durable names are missing from the portfolios.
Has ratings of HDFC funds dropped earlier?
Throughout 2007, HFDC Top 200’s rating had dropped to four stars, but it bounced back later. Picture given below shows the returns of HDFC Top 200 annual returns from 2001 to 2012 and quarterly returns from Dec 2010 to Sep 2013 along with BSE 200, Large Cap Equity funds are given below . One can check out HDFC Top 200 Performance at HDFC Top 200 at Value Researchonline HDFC Equity Performance at HDFC Equity at Value Researchonline
One can check out the Valuereserachonline best equity funds in last 1 year
While HDFC Funds may not be doing well. HDFC Asset Management Co. Ltd, India’s largest fund house with assets ofRs.1.03 trillion, was the most profitable money manager in the year ended 31 March.
So what should an Investor do ?
These funds carry relatively stable portfolios. In the short term, funds can be volatile and may even underperform the broader markets. Fund Manager Prashant Jain, is consistent and has conviction in his strategy. But Dhirendra Kumar of Valuereserachonline says , ”it would be advisable to diversify one’s portfolio by investing in equity schemes of various other fund houses and not allocate all the money to just one fund house
Comparing to hindi movies it’s like saying movie of Salman Khan or Aamir Khan or Ranbir Kapoor has flopped? Will you rule out Salaman Khan/Aamir Khan/Ranbir Kapoor from top Bollywood heros? Or you know that he would bounce back in the next few movies?
As I have invested in HDFC Top 200 fund for next 5 years,I shall not not withdraw my money from it as of now. I will be tracking it for another quarter to decide if SIP has to be discontinued.
Related Articles :
- Investing in Mutual Funds for Beginner
- Not All Mutual Funds Do Well -the Laggards
- Understanding Returns: Absolute return, CAGR, IRR etc
- Returns of Stock Market, Gold, Real Estate,Fixed Deposit
Remember buying popular funds doesn’t guarantee you any success . Current under performance may be just a blip but please be watchful of their performance over a little longer time horizon. Consistent underperformance would highlight weakness of the funds. What are you doing with your investment in HDFC Top 200 or HDFC Equity Fund.