Perception Versus Reality: HDFC Equity Mutual Fund
Reality may not impact you but your perception about the reality will definitely affect you. Something similar is happening in case of investors, who invested in the funds managed by India’s largest Asset Management Company (AMC) by Asset under Management (AUM), HDFC AMC. Among the funds managed by HDFC AMC has performed sub-par in the last one year and also in the three-year period.
Not a single equity-fund actively managed by them is in the top quartile in terms of performance in the last one year. In fact, HDFC small-cap fund is the worst performing fund in the last one year in this category. This is also the only equity fund from the AMC that has generated negative returns in last one year.
Some of the loyalist of this fund house will argue that one year is a too short period to pass any judgment. Hence, we extended our study to three-year period. Even in three-year duration, the picture does not change much. Again, not a single fund is in the top quartile; however, performance of the funds looks better than one year. But from an investor investing experience, it does not matter much.
One Year Performance
| Funds | Classification | 1-Year (%)* | Rank Overall | Rank Category | Total Fund |
| HDFC Index Fund-Sensex(G) | Index Funds | 17.77 | 36 | 1 | 32 |
| HDFC Index Fund-NIFTY 50 Plan(G) | Index Funds | 16.1 | 60 | 7 | 32 |
| HDFC Capital Builder Value Fund(G) | Value / Contra | 2.89 | 277 | 13 | 17 |
| HDFC Long Term Adv Fund(G) | Tax Saving (ELSS) | 12.48 | 130 | 15 | 42 |
| HDFC Mid-Cap Opportunities Fund(G) | Equity : Mid Cap | 4 | 263 | 15 | 24 |
| HDFC Growth Opp Fund-Reg(G) | Large & Mid Cap | 9.23 | 180 | 16 | 26 |
| HDFC Infrastructure Fund(G) | Sectoral - Infrastructure | 0.18 | 296 | 18 | 19 |
| HDFC Small Cap Fund-Reg(G) | Small Cap | -5.58 | 305 | 21 | 21 |
| HDFC Top 100 Fund(G) | Large Cap | 9.88 | 167 | 29 | 35 |
| HDFC TaxSaver(G) | Tax Saving (ELSS) | 6.84 | 228 | 32 | 42 |
| HDFC Equity Fund(G) | Multi Cap | 8.64 | 191 | 34 | 52 |
| HDFC Focused 30 Fund(G) | Multi Cap | 6.87 | 224 | 39 | 52 |
*All the returns are trailing return as on January 15, 2019
Three-year performance
| Funds | Classification | 3-year (%) | Rank Overall | Rank Category | Total Fund |
| HDFC Index Fund-Sensex(G) | Index Funds | 16.30 | 21 | 4 | 32 |
| HDFC Index Fund-NIFTY 50 Plan(G) | Index Funds | 14.73 | 44 | 10 | 32 |
| HDFC Capital Builder Value Fund(G) | Value / Contra | 9.44 | 172 | 9 | 17 |
| HDFC Long Term Adv Fund(G) | Tax Saving (ELSS) | 12.60 | 89 | 14 | 42 |
| HDFC Mid-Cap Opportunities Fund(G) | Mid Cap | 7.46 | 219 | 15 | 24 |
| HDFC Growth Opp Fund-Reg(G) | Large & Mid Cap | 9.32 | 175 | 16 | 26 |
| HDFC Infrastructure Fund(G) | Sectoral - Infrastructure | -1.46 | 273 | 18 | 19 |
| HDFC Small Cap Fund-Reg(G) | Small Cap | 10.20 | 156 | 7 | 21 |
| HDFC Top 100 Fund(G) | Large Cap | 11.46 | 117 | 23 | 35 |
| HDFC TaxSaver(G) | Tax Saving (ELSS) | 7.62 | 217 | 34 | 42 |
| HDFC Equity Fund(G) | Multi Cap | 11.25 | 124 | 27 | 52 |
| HDFC Focused 30 Fund(G) | Multi Cap | 6.24 | 238 | 46 | 52 |
Five-year performance
| Funds | Classification | 5-year Return (%) | Rank Overall | Rank Category | Total Fund in Category |
| HDFC Index Fund-Sensex(G) | Index Funds | 9.94 | 155 | 18 | 32 |
| HDFC Index Fund-NIFTY 50 Plan(G) | Index Funds | 9.3 | 171 | 19 | 32 |
| HDFC Capital Builder Value Fund(G) | Value / Contra | 8.07 | 208 | 11 | 17 |
| HDFC Long Term Adv Fund(G) | Tax Saving (ELSS) | 10.17 | 153 | 28 | 42 |
| HDFC Mid-Cap Opportunities Fund(G) | Mid Cap | 8.46 | 190 | 14 | 24 |
| HDFC Growth Opp Fund-Reg(G) | Large & Mid Cap | 6.24 | 237 | 22 | 26 |
| HDFC Infrastructure Fund(G) | Sectoral - Infrastructure | -0.69 | 273 | 18 | 19 |
| HDFC Small Cap Fund-Reg(G) | Small Cap | 9.15 | 176 | 8 | 21 |
| HDFC Top 100 Fund(G) | Large Cap | 8.09 | 207 | 31 | 35 |
| HDFC TaxSaver(G) | Tax Saving (ELSS) | 5.74 | 248 | 37 | 42 |
| HDFC Equity Fund(G) | Multi Cap | 7.86 | 213 | 43 | 52 |
| HDFC Focused 30 Fund(G) | Multi Cap | 6.26 | 236 | 46 | 52 |
Despite such lacklustre performance, the AUM of the fund house is rising better than the industry average. It has increased from Rs 2.96 lakh crore at the end of September 2018 to Rs 3.66 lakh crore in September 2019. They now command 14.9 per cent of the total domestic AUM against 13.3 per cent at the end of September 2018. In terms of actively managed equity funds, the fund house commands 15.8 per cent of market share.
This is what a perception does. HDFC AMC with star fund managers was one of the best performers in few years’ back time, which has led to the continued faith of investors in the funds managed by them. Nevertheless, the reality throws a different picture. Forget the top quartile, fund by this AMC are struggling to find a place in second quartile also. One of the reasons for such tepid performance may be due to higher AUM of the funds. For example, HDFC small-cap fund managed by Chirag Setalvad with AUM of Rs 9,232 crore at the end of December 2019, has the highest AUM in small-cap category. Similarly, HDFC mid-cap opportunities fund has AUM of Rs 22,796 crore and also the highest AUM in its category.
Some of the research shows that large fund size has some disadvantage when it comes to creating alpha for their investors. One of the main reasons why despite such performance, the fund house is able to increase its market share is because of its marketing prowess, which help fund company in terms of its reach and clout among fund distributors. At the end of September 2019, IFA’s account for 41.1 per cent of the equity-oriented AUM is up from 40.7 per cent of last year.
Does this mean that investors should exit from these bad performing funds? If return is the sole criteria for your investment, you should definitely evaluate these funds. However, if there are other reasons for your investment, you can base your decision on those criterions.