Do It Yourself Mutual Fund Analysis: HDFC Top 200 Fund

Analyzing the performance of a mutual fund is not rocket science.  Anybody can do it, just as anybody can select a mutual fund following a few simple rules.

I would like to prove my point with a do it yourself mutual fund analysis using HDFC Top 200 fund – one of the most popular mutual funds in India. Recently many investors have become disillusioned with the fund: “I thought Top 200 was the best fundand Prashant Jain was the best fund manager.  I am disappointed with its recent performance. My portfolio is in the red for months together”

One way or another, whether you are an individual investor or a financial advisor/planner, such a comment should be familiar enough to you.

My goal in this post is to analyse the performance of HDFC Top 200 fund over the last 5 years and find out how justified such sentiments are. The analysis will be done in two ways:

  • Using available resources online.  The goal is anybody, even a layman with a little inclination and minimal effort should be able to analyse the performance of the fund.
  • Using my Excel Rolling returns calculator.

Note:

  • A significant part of my portfolio is held in HDFC Top 200.  I have an ongoing SIP in it. So when I made the analysis, only one question was running through my mind: Should I stay invested in HDFC Top 200? Should I exit and invest elsewhere?

Method 1: Using available resources online.

Step 1:

(a) What kind of mutual fund is HDFC Top 200?

It is a diversified equity mutual fund investing in stocks that are part of the BSE 200.

The BSE 200 is a diversified  list of 200 stocks chosen from the BSE: predominantly large-cap stocks and mid-cap stocks. The health of the stocks and their growth potential is taken into account before they are included/excluded from the list.

Therefore, Top 200 can be part of ones core-equity portfolio.  Its performance may also be compared with the Sensex and Nifty indices.

(b) Why did I invest in HDFC Top 200?  Only you can answer this (my reasons are clear).  The nature of the goal and its time frame should be considered: Check out my step-by-step guide to goal-based investing

Step 2: Check out the Funds webpage

Let us face it, all AMCs present data in a confusing way.  Their goal is to ensure that the data published does not present the fund in a bad light.  HDFC is no different.

If you go to Top 200's page, you will need to locate an obscure link titled ‘returns and benchmarks’ which will take you to the bottom of the same page! You will now need to click Please click here to view Scheme Performance Summary (Fund Manager-Wise)

 In the page that loads, you will have to click on Mr. Prashant Jain and see:

hdfc-top-200-mutual-fund-performance
Snapshot HDFC Top 200's performance. Source: HDFC

From 28-06-2011 to 28-06-2013, the fund has severely underperformed when compared to its benchmark as well as Sensex.  However, from 28-06-2010 to 28-06-2013, the fund has beaten its benchmark comfortably but has performed just a little lower than Sensex.

Although this information is not very illuminating, considering the funds history (last entry in the table), the longer we stay invested in the fund, the higher is the expected outperformance (with respect to both BSE 200 and Sensex).

This vague inference can be confirmed by looking at Money Control’s Top 200 page

Step 3: Observe the plot comparing the scheme with its benchmark.  Screenshot of the 5-year period is shown below:

hdfc-top-200-money-control-5-year-performance
Plot of HDFC Top 200 NAV vs Benchmark (BSE 200) over a 5 year period (dated 8th Sep. 2013). Source: MoneyControl

The outperformance is clear. Even for a 3-year period the fund has managed to stay above the benchmark. If we have bothered to choose funds with a good record of accomplishment, we must give it space to perform – a period of at least 5 years.

Ignore the star rating (2-star FYI!) and most important, ignore this nonsense:

Moneycontrol mutual fund meter for HDFC Top 200 (dated 8th Sep. 2013)
Moneycontrol mutual fund meter for HDFC Top 200 (dated 8th Sep. 2013)

Step 4: Value Research Online’s Top 200 page

Let us look at two specific tables and ignore the rest:

Screen shot from Value Research Onlines HDFC Top 200 Page (dated 8th Sep. 2013)
Screen shot from Value Research Onlines HDFC Top 200 Page (dated 8th Sep. 2013)

The table on the left is part of VR Online’s front page (snapshot) while that on the right in part of the performance tab.

The trailing returns table for a most part paints a poor picture.  Investors should learn to ignore trailing returns.  They depend entirely on the date on which you choose to observe the returns.

An annual return, on the other hand, is between two fixed points and is far more reliable.  Notice that whenever the market rallies, Top 200 has given good returns.  Therefore, to benefit from this fund (or any other equity fund for that matter), we should periodically rebalance our portfolio after each market rally.  To learn more about the benefits of rebalancing, and how it reduces volatility in portfolio returns, you could use this tool.

Step 6: Morning Star India’s Top 200 Page

 Screenshot from Morning Star India's HDFC Top 200 page (dated 8th Sep. 2013)
Screenshot from Morning Star India's HDFC Top 200 page (dated 8th Sep. 2013)

Do not worry too much about the graph (although it is quite reassuring!).  Observe the performance of the fund compared with large-cap category averages and judge for yourself.

Also look at the turnover ratio.  This is a measure of how much the fund managers has modified his/her portfolio.  During the 2008-2009 recession, the fund manager has churned the portfolio quite a bit.  As a result, the fund lost much less than other funds and recovered much more.

The turnover ratio in 2012 was quite low. This suggests that the manager believes in his stock picks and is waiting for the economy to turn around. Considering his past performance, I would like to trust him (of course he could be wrong).

 I think it is safe to say that HDFC Top 200 fund remains a compelling pick.  I am going to stay invested in it. We will need to watch what happens in the months after the election next year.

That is it.  This analysis would take no more than 10-15 minutes.  If I have money invested in this fund, should I not take the effort of spending this much time in analysing the funds performance? All it takes is a little bit of commonsense.

Do not ask a mutual fund agent or financial advisor if you should change your mutual fund without making such an analysis.  Many times fund changes are suggested just to pacify clients. Many financial advisors and agents are worried about losing clients if they advise them to stay invested in a fund that appears to be going through a bad phase. Analyse the funds performance yourself and make an informed choice.

Method 2: Using my rolling returns calculator

If you want additional evidence of the fund performance then you could use my rolling returns calculator

To use this, we need the NAV history and the benchmark index (BSE 200) data. I have chosen a period between 8th June 2009 to 5th Sep. 2013. In this period the market had recovered from the 2008 crash.

The benchmark history is available here.

The NAV history can be obtained from here

Update: Here is the automated version of the rolling returns calculator

 Download the Rolling Returns Calculator for HDFC  Top 200 Fund.

Here are the results. Please go ahead make your own conclusions. As far as I am concerned, these results do not change the above conclusions. I am going to stay invested.

Rolling Returns analysis for HDFC Top 200 Fund
Rolling Returns analysis for HDFC Top 200 Fund

Your Say: What do you think? Do you agree with the above analysis?

 

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68 thoughts on “Do It Yourself Mutual Fund Analysis: HDFC Top 200 Fund

  1. Venkateswaran

    In the last set of rolling returns tables, you have mentioned in the second table as for the period 05-09-2011 to 05-06-2013 with only 229 rolling return entries. Is the date mentioned right? Can you please check.

    Reply
    1. pattu

      Dear Mr. Venkateswaran,

      Thank you for reading the article and commenting. The period mentioned is correct. There will be only 229 entries for 365 day rolling returns. The last entry is the average between 5/9/2012 to 5/9/2013.
      Thanks to you I corrected a cut and paste error in the middle table and also removed a typo.
      Do keep visiting and sharing your views.
      Pattu

      Reply
  2. Venkateswaran

    In the last set of rolling returns tables, you have mentioned in the second table as for the period 05-09-2011 to 05-06-2013 with only 229 rolling return entries. Is the date mentioned right? Can you please check.

    Reply
    1. pattu

      Dear Mr. Venkateswaran,

      Thank you for reading the article and commenting. The period mentioned is correct. There will be only 229 entries for 365 day rolling returns. The last entry is the average between 5/9/2012 to 5/9/2013.
      Thanks to you I corrected a cut and paste error in the middle table and also removed a typo.
      Do keep visiting and sharing your views.
      Pattu

      Reply
  3. bharat shah

    thank you for practical example to check the performance of a particular mf based on rolling ret.over a longer period @5yrs

    Reply
  4. bharat shah

    thank you for practical example to check the performance of a particular mf based on rolling ret.over a longer period @5yrs

    Reply
  5. R Swaminathan

    Thank you for this very relevant example of establishing a method for quantifying a mutual fund performance. In your earlier post for the rolling returns calculation, you had mentioned that the percentage change in Fund NAV is calculated from day 1 to day 7 and then Day 2 to Day 8, etc. I want to know whether the above analysis is done using this weekly time period and what will happen if I choose to analyse in monthly or fortnightly periods instead of weekly periods as there is very little change in NAV of a fund in a 7day period.

    Reply
    1. pattu

      Thank you for reading and posting your thoughts. I think for individual investors rolling return periods of 365 days alone make sense. Anything lower than that it difficult to analyse. More importantly it is unnecessary to do so.

      The above analysis was carried with 365 day rolling returns. I will update this information in the post. Thanks for pointing this out.

      Keep visiting and sharing your thoughts.

      Reply
  6. R Swaminathan

    Thank you for this very relevant example of establishing a method for quantifying a mutual fund performance. In your earlier post for the rolling returns calculation, you had mentioned that the percentage change in Fund NAV is calculated from day 1 to day 7 and then Day 2 to Day 8, etc. I want to know whether the above analysis is done using this weekly time period and what will happen if I choose to analyse in monthly or fortnightly periods instead of weekly periods as there is very little change in NAV of a fund in a 7day period.

    Reply
    1. pattu

      Thank you for reading and posting your thoughts. I think for individual investors rolling return periods of 365 days alone make sense. Anything lower than that it difficult to analyse. More importantly it is unnecessary to do so.

      The above analysis was carried with 365 day rolling returns. I will update this information in the post. Thanks for pointing this out.

      Keep visiting and sharing your thoughts.

      Reply
  7. AyushP306

    Very nice article. I liked it when you said, "The trailing returns table for a most part paints a poor picture. Investors should learn to ignore trailing returns. They depend entirely on the date on which you choose to observe the returns." I think BSE 200 has a wide universe of Mid Caps and HDFC Top 200's under performance and volatility in compare to pure Large Cap funds is somewhat related to it. But when the markets will turn for good, which it has done so far, the fund will definitely outperform other funds in its category!

    Reply
  8. AyushP306

    Very nice article. I liked it when you said, "The trailing returns table for a most part paints a poor picture. Investors should learn to ignore trailing returns. They depend entirely on the date on which you choose to observe the returns." I think BSE 200 has a wide universe of Mid Caps and HDFC Top 200's under performance and volatility in compare to pure Large Cap funds is somewhat related to it. But when the markets will turn for good, which it has done so far, the fund will definitely outperform other funds in its category!

    Reply
  9. sivaprasadr

    Dear Pattu Sir,

    I think , HDFC Equity has also almost same data. And so analysis will be same as above for HDFC Equity. My portfolio is also in red due to HDFC Equity.
    Thank You

    R SIVA PRASAD

    Reply
    1. pattu

      Yes. The one difference between Equity and Top 200 is their Mandate.
      Top 200 has a mandate to invest in BSE 200
      Equity has no such mandate. It can invest anywhere.

      Reply
  10. sivaprasadr

    Dear Pattu Sir,

    I think , HDFC Equity has also almost same data. And so analysis will be same as above for HDFC Equity. My portfolio is also in red due to HDFC Equity.
    Thank You

    R SIVA PRASAD

    Reply
    1. pattu

      Yes. The one difference between Equity and Top 200 is their Mandate.
      Top 200 has a mandate to invest in BSE 200
      Equity has no such mandate. It can invest anywhere.

      Reply
  11. Rajat Gupta

    I think statistics can make look good a lot of things. The biggest problem with HDFC Top 200 & for that matter Hdfc Equity fund is their fund size. Being the biggest funds with over Rs. 11000 crores of assets it will be difficult for both to repeat their previous performances. Hdfc Top 200 has assets of Rs. 11500 crs (as per their latest fact sheet). Its biggest holding is Infosys with 9.35% assets in it, So it holds scrips worth 1075 crs of Infosys & if it wants to trim its position in Infosys it will take the fund manager days to completely sell Infosys. Hence, it makes the fund extremely inflexible due to its large assets. Unlike many funds in the Diversified Equity / Mid cap space Hdfc Mutual fund hasnt made efforts to put restrictions on huge inflows in the fund which is extremely important to maintain superlative performance. Hence, apart from statistical numbers please also focus on other qualitative factors which are also of importance.

    Reply
    1. pattu

      Thank you very much for your erudite response. I am well aware of Top 200s fund size. I made a conscious choice not to mention this. While fund size is a quantitative factor, I will categorise it as qualitative as you did.

      I am of the view that good stocks will provide good returns over the long run. In fact,many large cap stock returns match those of mid-cap stocks.

      So I am not worried about size. I am not an advocate of monitoring fund size as I believe it will confuse and confound individual investors (hence qualitative). There are enough sources online which do that!

      That said, I appreciate your comment. I am sure it will be useful for more experienced investors.

      Thanks again. Keep visiting.

      Reply
  12. Rajat Gupta

    I think statistics can make look good a lot of things. The biggest problem with HDFC Top 200 & for that matter Hdfc Equity fund is their fund size. Being the biggest funds with over Rs. 11000 crores of assets it will be difficult for both to repeat their previous performances. Hdfc Top 200 has assets of Rs. 11500 crs (as per their latest fact sheet). Its biggest holding is Infosys with 9.35% assets in it, So it holds scrips worth 1075 crs of Infosys & if it wants to trim its position in Infosys it will take the fund manager days to completely sell Infosys. Hence, it makes the fund extremely inflexible due to its large assets. Unlike many funds in the Diversified Equity / Mid cap space Hdfc Mutual fund hasnt made efforts to put restrictions on huge inflows in the fund which is extremely important to maintain superlative performance. Hence, apart from statistical numbers please also focus on other qualitative factors which are also of importance.

    Reply
    1. pattu

      Thank you very much for your erudite response. I am well aware of Top 200s fund size. I made a conscious choice not to mention this. While fund size is a quantitative factor, I will categorise it as qualitative as you did.

      I am of the view that good stocks will provide good returns over the long run. In fact,many large cap stock returns match those of mid-cap stocks.

      So I am not worried about size. I am not an advocate of monitoring fund size as I believe it will confuse and confound individual investors (hence qualitative). There are enough sources online which do that!

      That said, I appreciate your comment. I am sure it will be useful for more experienced investors.

      Thanks again. Keep visiting.

      Reply
  13. Rajat Gupta

    Dear Pattu,

    I am really impressed with your blog & the content. The idea of my previous comment was not to undermine ur efforts but to highlight that there are several factors in fund selection. It is in itself a process & is not that DIY. I am sure you will agree with me with 10 more factors which are equally important while selecting a fund apart from the fund analysis approach you mentioned in your blog. Keep up th good work.

    Reply
    1. pattu

      Thank you. I am not offended at all. In fact,I welcome such comments. The blog is what it is today only because of comments like your which make me and other readers think.

      I fully understand that there several factors are important in fund selection. That said, I am also convinced that we need not thrust all of it on the unsuspecting investor. He/she should learn the basics first, learn how to assimilate information, read and learn continuously.

      Thank you once again.
      Knowledge and learning are disagreements children!

      Reply
  14. Rajat Gupta

    Dear Pattu,

    I am really impressed with your blog & the content. The idea of my previous comment was not to undermine ur efforts but to highlight that there are several factors in fund selection. It is in itself a process & is not that DIY. I am sure you will agree with me with 10 more factors which are equally important while selecting a fund apart from the fund analysis approach you mentioned in your blog. Keep up th good work.

    Reply
    1. pattu

      Thank you. I am not offended at all. In fact,I welcome such comments. The blog is what it is today only because of comments like your which make me and other readers think.

      I fully understand that there several factors are important in fund selection. That said, I am also convinced that we need not thrust all of it on the unsuspecting investor. He/she should learn the basics first, learn how to assimilate information, read and learn continuously.

      Thank you once again.
      Knowledge and learning are disagreements children!

      Reply
    1. pattu

      Hi Suman, if you spend time researching on fund selection and choose a fund that has seen all market cycles, then you stick to it for a long time.

      btw have you checked our my step by step guide to fund selection?

      Reply
    1. pattu

      Hi Suman, if you spend time researching on fund selection and choose a fund that has seen all market cycles, then you stick to it for a long time.

      btw have you checked our my step by step guide to fund selection?

      Reply
  15. taran

    Dear Writer,
    thanks so much for the eye opener, though I would like to get free advice, whether I should stay invested in HDFC top 200 Div plan, as I have been in this SIP for last 3 years ?

    Reply
  16. taran

    Dear Writer,
    thanks so much for the eye opener, though I would like to get free advice, whether I should stay invested in HDFC top 200 Div plan, as I have been in this SIP for last 3 years ?

    Reply
  17. AVS

    Hi,

    came across this blog searching for rolling returns. it's very confusing and difficult to churn the MF portfolio also. been investing in SIP in HDFC sensex plus for 3 yrs but returns not encouraging.would like to know if there are any index funds worth investing. looking at 8-10 yr horizon.

    Reply
    1. pattu

      I hope you have checked out the automated rolling returns calculator.For 8-10 years I will not be comfortable with a portfolio with dominant equity. A simple debt oriented balanced fund with 25% equity should do a good job for important goals and if you want to take a bit of risk used a balanced fund with 65% equity but be careful about volatility.

      Reply
  18. AVS

    Hi,

    came across this blog searching for rolling returns. it's very confusing and difficult to churn the MF portfolio also. been investing in SIP in HDFC sensex plus for 3 yrs but returns not encouraging.would like to know if there are any index funds worth investing. looking at 8-10 yr horizon.

    Reply
    1. pattu

      I hope you have checked out the automated rolling returns calculator.For 8-10 years I will not be comfortable with a portfolio with dominant equity. A simple debt oriented balanced fund with 25% equity should do a good job for important goals and if you want to take a bit of risk used a balanced fund with 65% equity but be careful about volatility.

      Reply
  19. Nandkumar

    Thanks for writing such a promising and helping article. You are the only person who has very honestly opened the doors for investors who wish to enter mutual funds market.
    I thank again and congratulate you for giving these short tips to all new investors
    Giri .Retd Distt.Judge.

    Reply
  20. Nandkumar

    Thanks for writing such a promising and helping article. You are the only person who has very honestly opened the doors for investors who wish to enter mutual funds market.
    I thank again and congratulate you for giving these short tips to all new investors
    Giri .Retd Distt.Judge.

    Reply
  21. nazeer thakur

    Dear Sir,

    I want to invest in advantage fund i want to invest 150000 pl suggest me from where i can get good return with out risk. i am new investor.

    Reply
    1. pattu

      I dont know which fund you are referring to. If you are a new investor, I suggest you first look at the annual returns of some mutual funds and see how much they could vary. Then you can think of investing.

      Reply
  22. nazeer thakur

    Dear Sir,

    I want to invest in advantage fund i want to invest 150000 pl suggest me from where i can get good return with out risk. i am new investor.

    Reply
    1. pattu

      I dont know which fund you are referring to. If you are a new investor, I suggest you first look at the annual returns of some mutual funds and see how much they could vary. Then you can think of investing.

      Reply
  23. saurabh

    Sir,
    I must say ur doing a great job and being a asset to our society. I am new to this mutual fund world and after slogging through various options I have chose HDFC TOP 200 , but its review had made me to again think about my other options even somewhere it had been written by investors that they have been investing in it for past 3 years through sip yet they are in heavy loss. I want to invest for 10+ yrs pls answer my query is it suitable to invest in it at present market scenario. looking forward to ur reply....

    Reply
      1. saurabh

        sir u have not answered my whole queries about the performance of hdfc top 200. also please through some light regarding the huge size decreases the performance of the fund as th hdfc top 200 has iver 11000 crores as its size will it really effect its performance in near future.

        Reply
  24. saurabh

    Sir,
    I must say ur doing a great job and being a asset to our society. I am new to this mutual fund world and after slogging through various options I have chose HDFC TOP 200 , but its review had made me to again think about my other options even somewhere it had been written by investors that they have been investing in it for past 3 years through sip yet they are in heavy loss. I want to invest for 10+ yrs pls answer my query is it suitable to invest in it at present market scenario. looking forward to ur reply....

    Reply
      1. saurabh

        sir u have not answered my whole queries about the performance of hdfc top 200. also please through some light regarding the huge size decreases the performance of the fund as th hdfc top 200 has iver 11000 crores as its size will it really effect its performance in near future.

        Reply
  25. Sudeesh K B

    Hi,

    I am investing in HDFC TOP 200 as SIP since 2012 July, I am looking for a long term (more than 10 year). Shall I continue the SIP or move to some other fund.

    Thanks in advance

    Reply
  26. anand gupta

    5 years is a long time nd I don't think any future in next 5 years also in hdfc top 200 .becoz large company are not going to perform again .banking exposure is too much also in the fund .npa not going to clear in next 3 years as well ..God bless to the investors nd advisors who still want to be invested in hdfc top 200

    Reply

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