Category: Mutual Funds Review

We have been recommending investing in HDFC Funds. It is time that we presented the performance review for FY-2008. As you all know about the correction that happened in Global market didn’t spare Dalal Street as well 🙂

HDFC Equity Fund:
The fund has delivered 23.60% returns for investors since inception. However, SIP investors continue to make merry by fetching returns of 32.30% as on March-08.

HDFC Top 200 Fund:
This fund is rated 5 stars [*****] and is one of the best performing funds in India. Benchmarked against BSE 200, the fund has been consistently beating the benchmark delivering solid returns for investors. Top-200 fund has given returns of 27.35% since inception for original investors. While SIP investors have made 30.86%.

HDFC Tax Saver Fund:
This fund has also performed consistently delivering unbelievable returns of 35.48% for lump sum investors who invested in NFO and 38.99% for SIP investors. In addition to this, your investment would have qualified for Section 80CC Income Tax benefit.

HDFC Long Term Advantage Fund:
This fund is the youngest from the HDFC stable on which we have a recommendation. Lumpsum NFO investors made 36.65% while SIP investors made 39.27%. This fund qualifies for IT benefits under 80CC.

HSBC Equity Fund:
We are initiating coverage on HSBC Equity Fund with a SIP subscribe recommendation. We haver eviewed the performance of this fund for the past 5 years and fully satisfied by the performance and portfolio along with the process the fund house follows. [process is very important in the event of Turmoil in the markets]

HSBC Equity fund has delivered 52.09% returns since inception and SIP investors stand to gain by 42.93%. This is the youngest fund in our recommendation list.

Questions and Comments can be sent to feedback AT DalalStreet Dot Biz

With the Indian Government opening gates for Indian investors to invest in securities abroad, we have seen AMCs hitting the market with International Opportunities Fund, Emerging market Funds etc.

HSBC Emerging Markets Fund (HEMF) is an open-ended scheme seeking to provide long-term capital growth by investing in emerging economies the world over. The fund would invest both within and outside India, in equity and equity related instruments, share classes and units/securities issued by overseas mutual funds or unit trusts. Outside India, the fund would focus on emerging economies such as Brazil, South Africa, China, Russia, etc.

Diversification across various emerging markets sounds like a great idea. However, you need to take the SIP route for maximum benefit and I am wondering how can you manage several SIPs ? If you can spare at least an additional Rs 3,000 / month, then we recommend you to go for it else, focus on existing SIPs.

NFO – Open. Closes on 25th February
Initial Min. Investment – Rs 10,000
SIP – Available and Recommended. Opt for Growth.

The fund is not for short-term nor medium-term investors with a horizon of less than 5 years.

The markets maybe buoyant but our SIP investments have underperformed the markets in the past 6 months and 12 months period in the hands of HDFC Fund Managers [Prashant Jain, Chirag Setalvad and Vinay Kulkarni] .

HDFC Equity Fund:
Mainly focused on Large Cap stocks. This fund has delivered returns of 53.25% Vs 62.08% [S&P CNX 500]. However the fund continues to beat the benchmark for period longer than 3 years.

HDFC Top 200 Fund:
Has some exposure to Midcaps but a strict no to smallcap.This fund has delivered returns of 54.10% against benchmark [BSE 200] 60.03%. The fund continues to beat the benchmark for period longer than 3 years. Both the funds are managed by Sr. Fund Manager Mr. Prashant Jain, almost since inception. The fund manager believes in sticking to highly liquid stocks. In the past we have seen him pick-up turnaround companies or pick new winners and stick to them to reap the bounty. However, in the past 12 months their has been no aggression from the fund managers side but we continue to believe his performance will beat the benchmark over a 3+ year period.

HDFC Long Term Advantage Fund:
This fund was launched in the bear phase in Indian market. This fund has also failed to beat the benchmark SENSEX over a 12 month period. It generated returns of 40.36% Vs 46.84. [One cannot compare this fund for just 12 months period because investor funds are locked-in by default for 3 years] However, over a 3 year period the fund has beaten its benchmark index. The fund qualifies for ELSS investment tax benefit under section 80 of the IT act.

HDFC Tax Saver Fund Growth:
This fund saw change of guard with Tushar Pradhan moving to AIG and Vinay Kulkarni taking the drivers seat. This fund has again failed to beat its benchmark S&P 500 over 12 month period. However, it continues to beat benchmark and create wealth over longer term.

Since we advise Investors to have a long term view, we need to take atleast a 3 year period under review before one can pull the plug.

Here is a case study on why should you start saving money by investing in mutual fund SIP as early as possible in your life.

Shankar, a reader of your column is 30 years old. He wants to retire at the age of 55 with atleast 8.0 crore [$2 Million by today’s rates] in his mutual fund kitty. Taking base case view of the Indian economic growth, we advise Shankar to start investing Rs 25,000 every month for the next 25 years and assume he gets a compounded returns @ 15% to meet his investment goal ~ Rs 8.2 crore.

Investment Pattern -2:
However, Shankar cannot invest Rs 25,000 every month today and he tells us that he can invest just Rs 15,000 / month and wants to add Rs 5,000 for SIP every 5 years.

SIP of Rs 15,000 / Month from 2007-2012 + Holding period from 2012 to 2032. All yields at 15% – Rs 2.20 crore in 2032
SIP of Rs 20,000 / Month from 2012-2017 + Holding period from 2017 to 2032. All yields at 15% – Rs 1.45 crore in 2032
SIP of Rs 25,000 / Month from 2017-2022 + Holding period from 2022 to 2032. All yields at 15% – Rs 0.90 crore in 2032
SIP of Rs 30,000 / Month from 2022-2027 + Holding period from 2027 to 2032. All yields at 15% – Rs 0.54 crore in 2032
SIP of Rs 35,000 / Month from 2027-2032. All yields at 15% – Rs 0.31 crore in 2032

So at the age of 55, Shankar would have just Rs 5.4 crore

The method of averages don’t work here. You are seeing the obvious difference. So set your own goals for retirement and before spending on your Nautica or Nike in the Mall, invest in your SIP and whatever remains just blow it as you like it 🙂

Questions and comments can be sent to feedback @ dalalstreet dot biz

HDFC has also joined the bandwagon to launch an infrastructure fund like other AMCs. Everybody is painting a rosy picture of Indian infrastructure. However, their is no master plan and it is a haphazard growth story with various governments coming to power scrapping previous regimes work / projects and rampant corruption in awarding tenders.

HDFC Infrastructure Fund – Features

• Closed Ended Fund – 3 years Will be converted into open ended after 3 years
• To seek long term capital appreciation by investing predominantly in equity and equity related securities of companies engaged in or expected to benefit from the growth and development of infrastructure
• Minimum Rs. 5,000 and in multiples of Rs. 100 thereafter per application
• Till conversion of the scheme into an open-ended scheme, the scheme will offer for redemption / switch-out of units on an ongoing basis at monthly intervals at NAV based prices. The redemption / switch-out of units will be available only during the specified redemption period i.e. the first two business days of each calendar month

HDFC is charging an initial issue expense of 6% amortoised over a period of 3 years.

In an interview to the Press, Prashant Jain CIO of HDFC AMC said that Refineries, Utilities and Realty Stocks are the Most Expensive in today’s market.

Prsahant said,

I think there are better choices of label than the utility space at the current valuations and if one looks at the largest utility in the country and if one puts it along side the largest bank in the country both businesses are similar in terms of RoE what they earn. Both earn or give or take around 15 to 17% RoE.

So, whether the utilities may or may not fall they may actually drag over time for a number of years. But when two very similar businesses with similar ROEs and with similar growth prospects, the gap in valuations is 100% and to my mind it is not sustainable.

So investors of Reliance Power Ltd be ready to cash in on listing as Anil Ambani has 25% free float which is not locked in and you know what the ambanis can do 🙂

On Refinery Stocks,

Today refineries are somewhat like what Cement was like one year back. The refineries are a cyclical business, and currently the refining margins are very high. But I don’t think they will sustain beyond 1-2 years. And when one starts valuing cyclicals at peak cycles of 2X-4X replacement costs, I think the upside over the long-term is really not there.

Book some profits if you are in these sectors – suggestion for medium to long term investors.