At Personalfn, we have always maintained that investors are better off investing in mutual funds with a proven track record across time frames and market phases. Also the fund should not simply generate a higher return (since a lot of funds can do this effortlessly during a market rally), but should do so at relatively lower risk to the investor (which is where most funds falter).
HDFC Top 200 Fund (HTF) is one fund, which has consistently made the grade on various parameters (related to risk and return) and merits a mention.
What HTF offers
An offering from HDFC Mutual Fund, HTF pursues an index-plus investment strategy. As the name suggests, index-plus funds are mandated to invest a predetermined proportion of their assets in line with a stipulated index such as the BSE Sensex or the S&P CNX Nifty and the balance is invested in stocks outside the benchmark index. Investing a significant portion of assets in the stipulated index aligns the returns of the index-plus fund (depending on the allocation) with the chosen index.
Launched in September 1996, HTF is one of the premier offerings in the index-plus category. It invests upto 60% of its assets in line with BSE 200 (i.e. similar allocations) with the flexibility to invest the balance (40%) in stocks from the BSE 200 albeit in varying proportions. Since the BSE 200 is a relatively broad-based index with adequate representation for large caps and mid caps, by aligning itself to the index, the fund manager has the liberty to invest in stocks from across market capitalisations while anchoring a larger portion of the portfolio to large cap stocks for stability.
With a mandate to closely track the BSE 200, HTF has successfully managed to diversify its investments across both stocks and sectors. This has provided the fund with the edge to deliver above-average returns at relatively lower risk.
How HTF fares vis-à-vis its peers
| |
NAV
(Rs) |
1-Yr
(%) |
3-Yr
(%) |
5-Yr
(%) |
Std.
Dev.
(%) |
Sharpe
Ratio
(%) |
| Reliance Vision (G) |
251.3 |
54.7 |
52.5 |
59.8 |
7.21 |
0.47 |
| HDFC Top 200 (G) |
147.3 |
45.4 |
50.2 |
56.9 |
6.65 |
0.46 |
| Kotak 30 (D) |
42.8 |
55.3 |
52.8 |
54.5 |
7.37 |
0.46 |
| Franklin India Prima Plus (G) |
187.9 |
55.0 |
51.8 |
53.8 |
7.19 |
0.50 |
| ICICI Pru Growth (G) |
123.3 |
45.3 |
50.1 |
48.0 |
6.76 |
0.46 |
| BSE 200 |
|
53.3 |
44.6 |
44.5 |
|
|
(Source: Credence Analytics. NAV data as on October 10, 2007.)
(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument)
For the purpose of peer comparison, we have considered funds that predominantly invest in the large cap segment; furthermore, only those funds, which have been in existence for atleast 5 years have been chosen. HTF has pitched in an impressive performance on the net asset value (NAV) appreciation front vis-à-vis peers. Over the 5-Yr time frame, it has clocked an impressive return of 56.9% CAGR.
The fund has also successfully outperformed its benchmark index i.e. BSE 200 over the long-term.
Volatility
Standard Deviation (SD) is a measure of the volatility in a mutual fund’s performance; a lower SD effectively implies lower risk. HDFC Top 200 (6.65%) pitches in the best performance on the volatility control front vis-à-vis peers; Kotak 30 (7.37%) fares the worst.
Risk-adjusted return
Sharpe Ratio (SR) helps evaluate how well the mutual fund has compensated investors for the risk borne. For this purpose its returns are compared with those of a risk-free instrument. The higher a fund’s SR, the better is its performance on the risk-adjusted return front. HDFC Top 200 (0.46%) has delivered a competent performance on this parameter which when combined with its impressive volatility control performance is even more noteworthy.
As can be seen in the graph, HTF has outperformed its benchmark i.e. BSE 200 over the long-term. Rs 100 invested in HTF on inception would be worth approximately Rs 1,849.2 at present; whereas an investment in the benchmark index would have yielded Rs 649.9.
What should investors do?
Now the big question is, should an investor consider investing in the fund? Well, that would depend on his risk appetite, investment objective and existing portfolio, among a host of other factors. At Personalfn, we have always maintained that a ‘one size fits all’ approach doesn’t work while investing. An investment avenue that is apt for one investor could be grossly unsuitable for another. Therefore, investors would do well to consult their investment advisors/financial planners to determine the suitability of HTF in their portfolio.
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