HDFC Equity Fund Analysis

HDFC Equity Fund is an open ended growth equity mutual fund which primarily aims to provide long term capital appreciation. The benchmark index for this fund is CNX 500. As of 30th Sep 2015, the asset under management (AUM) of HDFC Equity Fund was around Rs 17,137 crores.

HDFC Equity Fund was launched in 1995. It has been in existence for almost 20 years and this gives us a very rich set of data to analyze the performance of HDFC Equity Fund over various time periods.

To know more about the scheme objectives and key features, read this.

HDFC Equity Fund, being an equity oriented fund is primarily invested in stocks, with balance debt, cash and cash equivalents. To know more about its composition read this.

The Top 5 Holdings of HDFC Equity Fund are as below.

  • Infosys
  • State Bank of India
  • ICICI Bank
  • Maruti Suzuki India
  • Larsen & Toubro

Together they account for 38% of the funds corpus.

Methodology of the Analysis

  • First I obtained daily NAV data of HDFC Equity Fund from 1996. The data is from Jan 1996 to Oct 2015. I downloaded the data from HDFC Mutual Fund website here.
  • Then I estimated the rolling 1 year, 2 years, 3 years, 4 years, 5 years, 6 years and 7 year returns.
  • After that, I calculated a number of simple but informative statistical formulas on the returns data.
    – Average, Maximum and Minimum Returns.
    Standard Deviation – This gives us an indication of the variability of the data.

HDFC Equity Fund – 1 Year Returns Analysis

HDFC Equity Fund - 1 Year Rolling Returns Analysis

Average 1 year rolling return is 31%. However standard deviation is a massive 42%, which indicates a huge variability.

If we were to assume that the returns are normally distributed, then we can conclude the following.

  • There is a 68% probability that returns could be between -11% and 72% in any 1 year period which is not at all helpful.
  • There is a 95% probability that returns could be between -53% and 114% in any 1 year period.

Conclusion: In other words anything can happen in a 1 year period. There is no predictability.

HDFC Equity Fund – 3 Years Returns Analysis

HDFC Equity Fund - 3 Year Rolling Returns Analysis

Average 3 year rolling return is 27%, which is 4% lower than 1 year returns. However standard deviation has now come down by half to 19%, which is still high

If we were to assume that the returns are normally distributed, then we can conclude the following.

  • There is a 68% probability that returns could be between 8% and 47% in any 3 year period.
  • There is a 95% probability that returns could be between -11% and 66% in any 3 year period.

Conclusion: Although an improvement over 1 year rolling returns, there is still a lot of variability.

HDFC Equity Fund – 5 Years Returns Analysis

HDFC Equity Fund - 5 Year Rolling Returns Analysis

Average 5 year rolling return is 26%, lower than 3 years average rolling returns of 27%. However standard deviation has now come down further to 13%.

If we were to assume that the returns are normally distributed, then we can conclude the following.

  • A person who invests in HDFC Equity Fund can say with 68% certainty that he would make at least 13%, which is much better than even Public Provident Fund (PPF).
  • There is a 95% probability that returns could be between 0% and 52% in any 5 year period.

HDFC Equity Fund – 7 Years Returns Analysis

HDFC Equity Fund - 7 Year Rolling Returns Analysis

Average 7 year rolling return is 27%, almost same as 5 years average rolling returns. However standard deviation has now come down further to 10%, which is manageable.

If we were to assume that the returns are normally distributed, then we can conclude the following.

  • There is a 68% probability that returns could be between 18% and 37% in any 7 year period, which is very good indeed.
  • In any 7 year rolling period, there is a 95% percent chance that the lowest returns would be 8%. The lowest historical 7 year return has been 9%, which is the same as Public Provident Fund returns.

Conclusion

  • Predictability of returns of HDFC Equity Fund seems to increase with increased holding period, accompanied by a reduction in variability.
  • Long term returns (7 years) for this fund has been around 27%, with a maximum of 42% and minimum of 9%, which is a very good number. However, such performance might not repeat in the future.
  • HDFC Equity Fund has outperformed the market by 9% CAGR long-term (Franklin India Index Fund Nifty Plan) whose long term returns (7 years) have been around 16%, with a maximum of 29% and minimum of 3%.

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A Few Last Words

Before making any investment decision, please contact your financial adviser.

I do not own this mutual fund.

I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. I do not offer any opinion concerning securities or public offers. Whatever analysis I provide is through public media only on Mkerj. I am not covered under RA Regulations.

I have provided this article for educational purpose only.

I hope you found this article on HDFC Equity Fund Analysis useful. If you have something to add please leave a comment in the post. Please feel free to contact me.

Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

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