Finally, HDFC announced its first batch of changes in its equity schemes to fall in line with SEBIs scheme categorization rules. While we wait for changes in its hybrid schemes including the much-awaited fate of HDFC Balanced and Prudence, one of the most prominent changes was HDFC Top 200 being renamed as HDFC Top 100 and it will now be classified as a “large-cap fund”. In this post, I discuss what current HDFC Top 200 investors should consider before “staying put” or moving on during the exit-load-free period.
HDFC Equity too has changed, but it will still remain a multi-cap fund. Its main change seems to be in asset allocation. It can now invest in more bonds, some REITs and some preference shares. I don’t know what AMCs are trying to do by adding 10% Real Estate Investment Trusts (REIT’s) and Infrastructure Investment Trusts (InvITs) like a masala to every fund! So wrt HDFC Equity, if you are still invested in this fund, then you can continue to do so.
Should I Exit HDFC Top 200?
The short answer: If you are still interested in HDFC Top 200, then you are already invested in a large-cap fund, and you can continue to do so. Why do I say “still invested” for both funds? Because at least a few years ago, many investors were unhappy with the way Prashanth Jain picked stocks and started saying “he should have done this, done that etc.” So the AUM of Top 200 (and Equity) did not grow as fast as it did during the recent “bull run” as much as it did during the 2008-recovery So if you are still invested in this fund, it could be (a) old units purchased a while ago or (b) you have kept the faith and continued to invest.
For the long answer, I will turn to MorningStar – which I believe is better than Value Research for fund or stock analysis. Fortunately, either by informed choice or happy coincidence, MorningStar has used BSE 100 TRI (dividends included) to evaluate the performance of Hdfc Top 200. When the fund becomes HDFC Top 100, its new benchmark will be NIfty 100 index. So we are in a position to evaluate the past performance of the fund with its future benchmark.
If you use the Equity Mutual Fund Portfolio Comparison Tool, you find that HDFC top 200 currently has 51 stocks from Nifty top 100 (with different weights) and only 12 stocks are from elsewhere. So the shift from HDFC Top 200 to Top 100 is not exactly a huge change. I have used Nifty 100 ETF for comparison (3 funds can be compared so two of them are Top 200).
Also, consider screenshot from the Morningstar fund page
It is clear that HDFC Top 200 is already a large cap fund. So the transformation to HDFC top 100 is not exactly a big change to worry about. As regards yearly performance, it is not exactly stellar!
If you consider -year rolling returns with both NIfty 100 TRI and NIfty 200 TRI (its current benchmark is BSE 200), the results are reasonably comparable. The bad news though is that since Aug 2015, five year returns of this fund are comparable with both indices. These were calculated with Mutual Fund SIP and Lump Sum Rolling Returns Calculators
The big problem is the risk management. If you use the rolling standard deviation calculator (a measure of risk) you get this over 5 years.
For much of the period over which the fund has not been able to beat NIfty 100 or NIfty 200, it has also been more volatile. Perhaps the volatility will decrease in its new avatar as HDFC top 100, but higher risk and no outperformance for 2.5 years is not exactly something to shout about. That is why I said if you have kept the faith in this fund so far, there is no need to change now just because it has become Top 100. If you wish to keep the faith, then go ahead, I am not saying it is a wrong choice, but this fund will likely test your patience. If you had enough then exit during the designated period for another fund.
Please note that it would not only irresponsible but also immature on my part to give you a simple “stay” or “exit” call. And if you are relying on my calls, then you should not! My job is to present facts without speculation. So let us recap the facts: HDFC Top 200 is already a fund with large-cap tilt. So its change to HDFC top 100 should be no cause for alarm and no reason to exit the fund. That this fund is volatile is well known. That this fund has recently gone through a rough patch is also well know. However, these things can change fast. If you exit, please be aware that the more stringent your expectations, the more cluttered your portfolio will get. Anyway, if you wish to exit, as explained yesterday, you can do so practically free from LTCG tax now. You can use the published calculated to verify.