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- Rated 2.5 stars
- HDFC Equity Fund
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HDFC Equity Fund is an equity-based multi cap fund. Launched on January 1, 1995, the objective of the scheme has been to offer long-term capital appreciation by mainly investing in high growth companies that have a definite competitive edge over others, coupled with solid financial reserves. Let us see if the fund has performed to its potential, and if as an investor; one should buy, hold or sell it.
Basic Information and Costs
The fund is helmed by Prashant Jain, one of the top fund managers of the country, synonymous with HDFC mutual funds. HDFC Equity Fund is benchmarked against Nifty 500. It requires a minimum investment of Rs. 5000, though for SIP route, the minimum that an investor can put is Rs. 500. The fund is perceived as ‘moderately high’ on the riskometer. The fund has an exit load of 1 percent if it is redeemed before 365 days. The expense ratio for HDFC Equity is 2.07 percent. As on August 31, 2016, the AUM (Assets Under Management) size is Rs. 16,047 crore, the turnover being at 30 percent.
99.6 percent of the corpus is invested in equities with 0.3 percent in debt and 0.1 percent in others. From the sectoral point of view, one sees that 32.02 percent allocation is in financials, 13.09 percent in automobile, 9.79 percent in energy, 9.06 percent in diversified and 8.92 percent in technology.
The top holdings for HDFC Equity Fund include State Bank of India (9.39 percent), ICICI Bank Ltd (8.14 percent), Larsen & Tourbo Ltd (7.15 percent), Infosys Ltd (6.23 percent), Maruti Suzuki India Ltd (5.30 percent), HDFC Bank Ltd (5.10 percent), Tata Steel Ltd (3.67 percent), Aurbindo Pharma Ltd (3.62 percent), Bank of Baroda (3.09 percent) and Bharat Petroleum Corp. Ltd (3.00 percent)
Since the time it was launched, HDFC Equity Fund has delivered 19.76 percent per annum. From a ten-year perspective, the return was 14.26 percent per annum, beating the Nifty 500 and the category average. However, the fund’s performance has not exactly been an enviable one, considering at 14.84 percent per annum, it lagged behind the category average of 15.90 percent per annum, in the 5-year period.
In the 3-year period, at 24.57 percent per annum, it beat the category average and benchmark return. In the past one year, the fund at 13.82 percent trailed behind its benchmark return of 13.93 percent and category average of 15.11 percent.
One of the biggest reasons for HDFC Equity Fund to underperform was the contrarian pick of State Bank of India, the timing of which went awry. Underperformance of PSU banks and macroeconomic scenario hurt the prospects of SBI, which reflected in the dismal performance of HDFC Equity Fund. Prashant Jain however has supported investing in public sector banks because he believes that in the long run, they will play a significant role in the country’s structural growth. In other words, he is ready to trade short-term blips to long-term gains.
While, the unwavering stand of the fund manager to pick companies that reflect long-term growth is notable, it can cause the fund to fall behind in momentum-oriented markets. Also, the fund manager’s policy of continuing to be fully invested in a downturn can lead to further under performance compared to its peers who take active cash calls. Also, when we talk about peers, there are other funds in the same category that have done much better than HDFC Equity Fund in 1, 3 and 5-year period, the notable ones Birla Sun Life Equity Fund, ICICI Prudential Multicap Fund and Franklin India Prima Plus Fund.
Should I buy, sell or hold HDFC Equity Fund?
There was a strong reason for selling the fund till 6 months back. However, in the last 6 months the fund has shown good recovery. The Fund Manager Prashant Jain has phenomenal track record as well, so we want to give him one more chance before giving a sell call to the fund.
For existing investors, its recommended to hold the fund for some more time and review the performance after 6 months. But the fund is not recommended for new investment. New investors, may consider better funds like Birla Sun Life Frontline Equity Fund and SBI Bluechip Fund.
Good Fund Size
Excellent Fund House
Good Fund Manager
Low Expense Ratio
Below Average Performance
Below Average Consistency