The Hindu Business Line : HDFC Top 200 Fund: Invest

HDFC Top 200 Fund offers an exposure to a diversified basket of large-cap stocks well-suited to conservative investors. The fund's performance has slowed over the past year, with returns on the fund trailing a few of its peers. But HDFC Top 200 offers a relatively high degree of comfort in a volatile market due to its long track record of market out-performance, ability to handle downside risks well and a portfolio of quality stocks with a large-cap orientation.

With a 39 per cent return over the past year, the returns have lagged those of other large-cap funds such as Franklin India Bluechip and DSP ML Top 100 (both above 45 per cent). However, the fund's long-term track record (compounded annual return of 51 per cent over a five-year period) makes it a good candidate for your core portfolio.

HDFC Top 200 is an "index-plus" fund, which draws its portfolio mainly from the BSE 200 basket. Despite the defined investment universe, the fund is quite actively managed on two counts.

One, the fund usually holds no more than 40-50 stocks of the BSE-200 constituents, allowing investors to participate in select stocks with good potential.

Second, it takes significant overweight and underweight positions in sectors and stocks relative to the index. Its substantial out-performance of the BSE-200 over a five-year period shows that these active calls have added significant value over the years despite its "index-plus" mandate.

In terms of returns, the fund has lagged focused large-cap peers such as the Franklin India Bluechip Fund over the past year.

The fund's sector and stock choices have been conservative, with a bias towards sectors with a defensive orientation. An overweight position in consumer non-durables and underweight position in banks (relative to the BSE-200) appears to have impacted the fund's performance over the past year, even as higher weights to software and capital goods have paid off.

The fund has stayed a few paces behind the benchmark during the stock market rally from mid-June till date. However, the fund's appeal lies in its track record in managing downside risk. Both in the bear markets of 2000 and 2001 and subsequently, during the corrective phase in May/June, Top 200 contained NAV erosion at levels less than its benchmark, a feat achieved by only a few diversified funds.

The fund's portfolio structure and its recent track record suggest that it may not be suitable for aggressive investors seeking short-term results or significant market out-performance.

However, the Top 200 is a good option if you are saving towards a financial goal that is several years away and are focused on reasonable absolute returns accompanied by low risk.

Fund facts: Launched in October 2006, the fund is managed by Prashant Jain. The entry load is 2.25 per cent of NAV for investments of less than Rs 5 crore. The NAV per unit is Rs 108.1.

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