Who doesn’t know HDFC Top 200 Fund? One of the formidable schemes of the mutual fund industry, it created enormous wealth for its investors. Only till now. I am sorry to let you know that the fund is no more.
Yes, I know I am making a statement that will be true only in a few weeks. However, it is certain.
Under the new SEBI guidelines for scheme rationalisation and categorisation, HDFC MF has decided to do away with one of its flagship schemes HDFC Top 200 fund. The fund that will apparently take its position is the HDFC Top 100 Fund.
Thousands of investors who were ‘almost wedded‘ to this fund will find it difficult to move on, which they have to.
I take this opportunity to do a look back at the history of the HDFC Top 200 fund and what has happened now.
History of HDFC Top 200 Fund
HDFC Top 200 Fund was launched in 1996 by Zurich Mutual Fund (before it was bought out by HDFC MF) under the stewardship of Prashant Jain, one of the most respected fund managers in India.
Positioned as a large cap fund, it aimed to invest its money in the large cap universe, mostly out of the BSE 200 index.
Over time, its stated investment strategy stated came to be an index + style, that is a combination of passive and active styles.
About 60% of the corpus of the fund was matched to the index, that is BSE Top 200, and the rest was managed actively. The active portion investment was done on the principle of GARP or Growth at a reasonable price.
It also stated that it would stay away from cyclical stocks or mid cap stocks to reduce the risk of the portfolio and increase chances of positive returns over the long term.
This enabled investors to participate in wealth creation with relatively lower risk.
For most part of its existence, the fund delivered phenomenally. And the investors reciprocated too.
By 2014-15, HDFC Top 200 ranked as the largest fund scheme by AUM size. This even though the last couple of years were not so good for the fund in terms of performance.
But the investors faith remained steadfast for the fund as well as its manager.
Then a lot of things happened specially in the larger economy and stock market, more so in the large cap stocks space.
The large cap space has been getting crowded. Institutional money, that too domestic, specially from NPS and EPF started to flow in, primarily towards large cap stocks.
While the large cap stocks continued to grow and the returns were visible too, the existence of large cap actively managed funds was under a question mark now.
It was getting difficult to generate “alpha’ or returns more than what the index can provide, the biggest reason for the existence of active management of funds. The other reason is risk management.
Then there was the fund scheme strategy itself, which put 60% of its portfolio indexed to BSE 200 index. Only the balance 40% was tenable to active stock picking. But that too failed to generate results.
The fund was slowing losing its grip. Investors patience was running out. It was difficult to keep the faith unwavering.
The final blow
In Oct 2017, SEBI announced its guidelines for scheme categorisation and rationalisation, under which all fund houses had to put their schemes in pre-defined categories and align the names too to ensure that they did not communicate a different picture to a lay investor.
HDFC Top 200 decided. Given its large cap mandate, it chose the large cap category. Not just that, it also changed its name to HDFC Top 100 to align with the new category.
You may wonder how does that make a difference. A lot, actually.
First, the fund now has a restricted universe of the Top 100 companies by total market capitalisation and not the Top 200 companies (BSE 200) as before. That forces it to be more large cap than before.
Second, it has to invest at least 80% of its corpus within that revise universe of Top 100 companies by total market cap.
Finally, if it chooses to continue with its index plus style of investing where 60% of the portfolio is matched to the index, then it is going to be reduced to just another index fund.
I am only wondering if any investor will pay active fund fees and expenses to get an index fund performance. Specially, when HDFC itself has index funds with far lower fees and expenses.
In conclusion, HDFC Top 200 fund, as we all knew it, is dead.
If you have been an investor till now, you need to take a call to live with its new avatar or choose a more worthy fund.
Do share your thoughts and comments.
Correction: HDFC Top 200 was launched as ITC Threadneedle Top 200 by ITC Threadneedle MF and was managed by Bobby Surendranath. In 1997, Zurich bought Threadneedle and since Zurich already owned Kemper (which was behind 20th Century MF) it had to consolidate the India business. That happened in 1998. Prashant was part of 20th Century MF and in the merged entity he took over as CIO.
Thats quite a bit of history. Thanks for sharing.