Continue With SIP Route For Investment

HDFC Equity Fund

I have been investing in HDFC Equity Fund since the last few years through the SIP route. I have observed that the performance of this fund has been falling. Should I continue to invest in this fund?

I have so far not seen an equity fund that has not gone through its moods or phases. Even funds are eventually managed by humans! But I have seen this particular fund going through low phases in the past too and then subsequently recovering lost ground. There are very few funds where the fund manager has remained constant for 20 years or more – HDFC Equity is one such fund. If one were to examine the returns’ record for the last 10 years in the diversified category, this fund still reins No.1! Yes, there are a couple of others who are just a shade lower, such as Franklin Prima Plus, Birla Sun Life Frontline Equity or Reliance Growth but the point is that this remains a fund to be reckoned with.

Most of the time, the fund has consistently out-performed its benchmarks. Here is the chart which showcases the NAV appreciation of the fund against its benchmarks.

On a four-year basis it is not anywhere near the top. But again, on a one-year basis and five-year basis it is among the top performers. So which should you give credence to?

If one were to examine the behaviour of this fund over time, one gets a further insight. Its beta on a five-year basis is 1.05 which puts it amongst the most sensitive to changes in the index in its peer group. As you know, beta is a measure of the fund’s volatility with reference to the index. Most funds are between 0.85 and 1. This does make the fund relatively more volatile.

Next, one can examine its standard deviation which is another measure of volatility. In this measure too, HDFC Equity stands among the highest, making investors go through a bigger roller-coaster ride than its peer group. A third measure to look at is the Downside Risk, which measures the fund’s risk with reference to its frequency and extent of falls below its own average. Here too it stands among the highest, being surpassed by a few worthies such as Reliance Vision, Reliance Regular Savings and Templeton India Growth Fund. So does all this make it a bad fund? Volatility actually helps an investor who wants to buy continuously through an SIP route.

You will notice that the differences in the market value of your SIP investments did not differ much from the top performer in this period. Chasing the top performer from year to year is a mugs game – a waste of time. Just continue with your SIP. After another few years you will not even be asking this question!

Disclaimer: Past performance does not guarantee future returns. The mutual funds which have been mentioned above are indicative of historical performance only. Please consult your financial advisor before investing in mutual funds.