The Hindu Business Line : HDFC Equity: Invest

INVESTMENTS in HDFC Equity can be considered with a considerably long-term perspective. This fund's aggressive strategy is not suitable for an investor with a holding period of less than three years, especially given the rich valuations at which stocks are trading. For a longer-term investor, the same strategy, however, holds the potential to deliver returns, commensurate with risk.

Performance: The latest fact-sheet of HDFC Mutual Fund unveils an interesting facet of its Equity Fund. The portfolio turnover of HDFC Equity Fund is 121 per cent. In contrast, that of HDFC Growth is about 30 per cent. This means that for HDFC Equity, the holding period of a stock is less than a year whereas HDFC Growth holds a stock for well over a year. This reflects the fund's aggressive nature.

Fluctuations in the NAV of HDFC Equity has, generally, been higher than a comparable fund. The fund, however, has the long-term performance to show for it.

HDFC Equity's returns have been significantly better than its benchmark S&P CNX 500. Average returns to an investor over both a three- and five-year period have also been either better or equal to that of comparable funds such as Franklin India Bluechip, DSP ML Equity, Reliance Growth and Birla Advantage.

Portfolio: HDFC Equity is now one of three funds with assets under management in excess of Rs 2,500 crore. The fund's asset base has grown from about Rs 1,100 crore at the end of January 2005 to its present size. This fund has been in existence for more than 10 years now.

The large asset base alone will make the fund lean towards large-capitalisation stocks. The fund has also generally favoured large-cap stocks even when Zurich India Asset Management managed it under the name of Zurich India Equity.

At the end of January 2006, despite the large size, the fund was almost fully invested. The top 10 stocks accounted for nearly two-third of the net assets — a significantly high level of concentration. Half the net assets were accounted for by just three sectors — IT, auto and industrial capital goods. Such concentrated exposure has remained the fund's strategy for a long time.

When the market was much smaller, the fund used to have about 15 stocks in its portfolio. With the four-fold increase in market capitalisation in the past three years, the fund now has 32 stocks in its portfolio. Such concentrated exposures require investors to enter with the ability to hold for a longer term.

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