HDFC Top 200: Lower risk route to higher returns

HDFC Top 200: Lower risk route to higher returnsDecember 06, 2006 10:00 IST

Index investing is the low-risk way to consistent long-term growth of any portfolio. The risk is low because you are removing the fund manager factor from your scheme by exactly mimicking the index.

Broad stockmarket indices give a long-term return that beats inflation and fixed income returns. In India, most managed funds have succeeded in beating the indices. This makes index investing look unexciting. However, there is a category of funds that offers the lower risk route, and yet remain in the higher return zone.

These aim to track, and not mimic, the index. Don't expect such schemes to top the charts on a consistent basis, but if you are looking for consistent 'in the Top 10 or so' schemes, we have just the scheme for you. HDFC Top 200 is a conservative equity scheme that invests in companies within BSE 200 index.
Portfolio strategy

The common holding of scrips between BSE 200 index and HDFC Top 200 must add up to 60 per cent of the scheme's corpus. This means that if, say, Reliance Industries constitutes 7.5 per cent of BSE 200 index and 6.3 per cent of the scheme, the common holding is 6.3 per cent.

In other words, though HDFC Top 200 is not an index fund, it tracks the index closer than a diversified equity fund. "A tightly-defined scheme objective ensures a natural check on the portfolio quality," says fund manager Prashant Jain.

HDFC Top 200 is also more diversified than HDFC Equity Fund. While HDFC Top 200 has 54 stocks, the latter has 33 stocks according to its October-end portfolio. Also, while HDFC Equity has 32.9 per cent and 54.9 per cent of its corpus in the Top Five and Top 10 scrips, respectively, the corresponding numbers for HDFC Top 200 are 25.8 per cent and 41.4 per cent of its corpus.


Although HDFC Top 200 is fairly diversified across companies, it has sectoral concentration. It's top three sectors are energy (21.10 per cent), technology (20.02 per cent) and FMCG (10.23 per cent). Also, 71 per cent of its corpus is invested in just five sectors. The scheme's portfolio is concentrated towards large-cap scrips with around 83 per cent of its corpus in them and around 16 per cent in mid-caps.


Performance


The scheme's one-year risk adjusted returns is sixth out of our list of 86 schemes. That is just behind HDFC Equity, which is less diversified and, consequently, carries higher risk. Over the past three and five years, the scheme returned 46.7 per cent and 52.7 per cent CAGR returns, respectively, as against a CAGR of 43.6 per cent and 45.1 per cent by the category average.

? The fund has increased its allocation for large-cap stocks over the last six months to protect against the high volatility that has marked this period. HDFC Equity and HDFC Top 200 enjoy the same legacy. When HDFC Mutual Fund acquired Zurich India Mutual in June 2003, HDFC Top 200 came along with it. The scheme's strategy has remained the same throughout.

Fund Manager


Prashant Jain is one of the best-known fund managers in the country. With more than 10 years in the Indian mutual funds industry, he is a veteran.?


Why buy
Star fund manager, Prashant Jain, has been around for the past 10 years
High portfolio quality: focus on the top 200 companies
Sound, long-term track record


HDFC Top 200
Fund manager: Prashant Jain
NAV
Rs 105
Launch date
31-Aug-96
Top 5 scrips (%)
25.8
Top 10 scrips (%)
41.4
Corpus (Rs cr)
1,484.90
Entry load (%)
2.25
Exit load (%)
1% before 12 months
?
Rs 1 lakh invested in
?
Oct 2005*
Oct 2003*
Oct 2001*
HDFC Top 200
1.59
3.16
8.3
Category average
1.51
2.96
6.43
Sensex
1.64
2.64
4.34
BSE200
1.56
2.54
5.1
* Figures in Rs lakh