HDFC Regular Savings Fund - Rating & Review : Best to Worst

HDFC Regular Savings Fund – Rating & Review : Best to Worst

Roboadviso     Mutual Funds Rating     Posted On, Mon 13th February, 2017     No comments
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  • HDFC Regular Savings Fund
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  • Last modified: July 21, 2017

HDFC SHort Term Plan Rating review

HDFC Regular Savings Fund is a credit opportunities fund from HDFC Asset Management Company. Lets understand the composition and performance of the fund to decide whether an investor should invest in this fund or not.

Basic Details:

The fund was launched on 28th Feb, 2002 and is managed by Mr. Anil Bamboli since Jan 2004. Minimum Investment amount of the fund is Rs. 5000. Its an open ended fund and redemption can be made anytime. However, the fund has an exit load 0.75% on 85% of the units if redemption is made before 365 days. Benchmark of the fund is Crisil Short Term Bond. Assets Under Management (AUM) of the Fund is Rs. 4129 Crores

Strategy of the fund:

The objective of the Fund is to generate regular income through investment in debt securities and money market instruments. Investment is primarily done in medium to low quality commercial papers and debentures to generate extra return. HDFC Fund House is considered to be among the best fund house to pay credit opportunities strategy in India. The Fund is suitable for someone who has a minimum time horizon of 2 years and can handle short term volatility in Debt Funds.

Performance

The fund has been consistently doing well in the last few years. It has delivered per annum return of 10.24% in last 1 year, 10.17% in last 3 years and 9.45% in last 5 years. The fund has delivered good return when compared to other peer funds in the same category. 

Expense Ratio

HDFC Regular Savings Fund had an expense ratio of 1% few years back. Then expense ratio was increased to 1.5%. Few months back the expense ratio was increased to 1.67% and now the expense ratio has been made 1.87%. Expense Ratio is the charge which fund house charges from investor every year to manage the fund.

The expense ratio has been increased by the fund from 1% to 1.87% without any prior notice to investors. So an investor who came into the fund when expense ratio was 1% would be shocked to see the expense ratio of 1.87% now.

Expense ratio is the most important factor in Debt Funds. Since the return from debt funds is limited, its important that low expense ratio is paid to fund house. High Expense Ratio will lead to low return in Debt Funds.

The pre expense yield (YTM) of HDFC Short Term Plan is 8.39%. If we deduct the expense of 1.87% from the yield then net yield payable to investor is approx 6.5% assuming that fund manager doesn’t creates alpha in return.

The question is why should an investor invest in this fund and take high credit risk when net yield payable to him is only 6.5%.

The yield or return in the debt market has fallen significantly, its important that HDFC Fund house reduce expense ratio so that net payable yield to investor increases. Surprisingly, HDFC AMC has been behaving in an anti investor fashion by increasing expense ratio with every fall in Interest rate.

Recommendation:

Because of high expense ratio, investors should not invest any amount in this fund. The fund will deliver low return despite taking high risk. Existing investors should exit this fund if their 3 years tenure has been completed so as to qualify for long term capital gain tax.

Pros

Fund House – Excellent
Track Record – Good

Cons

Expense Ratio – Very High
Portfolio Quality – Very Weak

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