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HDFC Top 200 lost a star. Should you worry?

Consider the fund’s pedigree, trust your fund manager’s conviction. Kayezad E Adajania explains.

india Updated: Jun 30, 2012 00:39 IST
Kayezad E Adajania
Kayezad E Adajania
Hindustan Times

India’s largest equity mutual fund (MF) scheme appears to have lost a bit of its gloss. Value Research, one of India’s leading mutual fund (MF) tracking firms, has reduced HDFC Top 200 Fund’s (HT200) star rating to four stars. This is the first drop in the rating, since March 2009, of the Rs 11,381 crore diversified equity fund by Value Research. HT200 is a part of Mint50, Mint’s curated set of 50 investment-worthy MF schemes. If you are an investor in HT200, should you be worried? And should fresh investors consider it? And should it continue to be a part of Mint50? Read on to find out more.

“In the past three years, the scheme has given negative returns in a few months,” said Dhirendra Kumar, chief executive officer, Value Research. “That is the primary reason why it got pushed down a notch.”

HT200’s top three sectors are banks (22.7% of its corpus), software (10.1%) and consumer non-durables (6.9%). The year 2011 was a bad year for the banking sector and equity schemes that had invested heavily here, including HT200, suffered. “We thought that the fiscal deficit would come down, but it didn’t come down as much as we had expected,” said Prashant Jain, chief investment officer and fund manager, HT200. “So the fund’s returns suffered last year.”

Does its recent poor performance worry Jain? “We are focused on beating the benchmark and that we did in the last calendar year,” he said. Jain has shifted gears and has been picking stocks and sectors he believes are beaten down enough and are now available at attractive valuations.

“It’s not possible to maintain a five-star rating indefinitely,” said Jain. “In the past, too, we have come down and then gone up again; this is not the first or the last time it will happen. But we continue to outperform our benchmarks. We won’t change our investment style; we’ll continue to focus on what we think is right.”

Most financial planners we spoke to see HT200’s performance as a small blip.

“A drop in its star rating will not make a difference, unless there is a genuine problem,” said Rupesh Nagra, head (investments and products), Alchemy Capital Management Ltd, a financial planning firm. “We will continue to recommend it to our clients unless we take a view that something has gone wrong with its portfolio.”

Director of Brainpoint Investment Centre Ltd, a Mumbai-based financial planning firm, Jaydeep Kashikar, too believes that HT200 is steady on its path.

But not all are convinced. “We are not advising fresh investments in this fund now, but we are also not telling anyone to redeem,” said Rajesh Krishnamoorthy, managing director, iFast Financial India Pvt Ltd.

Bangalore-based financial planner Lovaii Navlakhi has also recommended “going slow on fresh allocation”, but existing investors of HT200 must stay invested, he adds.

Look at star ratings, but also consider the fund’s pedigree and trust your fund manager’s conviction. HT200 is a part of Mint50 and remains there for now.

First Published: Jun 29, 2012 21:36 IST