Mutual Funds

HDFC Top 200: Invest

K. Venkatasubramanian | Updated on August 17, 2013

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Sticking to proven names may be the most appropriate strategy while investing for the long term.

HDFC Top 200 is among the many large-cap funds that have done well across market cycles.

Investors can buy the units of the fund as it has consistently beaten its benchmark as well as peers over the long term.

The fund may not deliver in the short term of, say, a one- or two-year timeframe.

But if the investment horizon is five years or more, HDFC Top 200 rewards its investors handsomely.

By sticking to a ‘buy and hold’ strategy that is generally anchored in stock valuations, the fund has been able to ride out market cycles quite well.

Very rarely does the fund go overboard on momentum-driven sectors and stocks.

Though it lags its benchmark, the BSE 200 in the past one year or so, over the three- and five-year timeframes, the fund did outpace its benchmark.

In the past five-year period, it delivered compounded annual returns of 9.4 per cent, which puts it in the top quartile of schemes with mostly a large-cap mandate.

Portfolio and strategy

HDFC Top 200 has a track record of over 15 years and investors can consider it for being part of their core portfolio. Investments with at least a five-year time horizon can be done through the SIP route to ride out volatility.

The fund has underperformed in the last 12-18 months as it did not increase exposure to spectacularly performing sectors such as consumer non-durables and pharma as their valuations rose to uncomfortable levels.

In fact, it reduced exposure to consumer non-durables over the past one year. By having high exposure to banks, the scheme has had to contend with heavy correction in the segment.

But historically, the fund manages to bounce back when prolonged rallies are witnessed in the markets. In 2007, the fund lagged its peers, but did well to contain downsides in 2008-09.

It also participated well in the 2009-10 rally and outpaced its benchmark substantially.

In the last one year, it has increased investments in sectors such as software, where there may be greater potential for rallies while still affording comfort on valuations.

It has also increased weightage to oil and petroleum products segments, which are likely to benefit from decontrol in retail pricing.

HDFC Top 200 remains nearly fully invested across market cycles, leading to erosion in NAVs during corrections. But this strategy also allows the fund to take advantage of upswings in the market.

On a rolling daily return basis over the past 10 years, HDFC Top 200 has beaten its benchmark 80 per cent of the time, indicating a high degree of consistency. Invest in it for five to seven years to gain meaningful capital appreciation.

Published on August 17, 2013

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