The best gift for children on Children’s Day
Senior Fund Manager – Equities
WF: The fund has been a top quartile performer in the category over 1 and 3 year time horizons. What are the few factors that have contributed to this outperformance?
Chirag - We follow a stock specific approach in building the portfolio with a focus on good quality companies that are available at sensible valuations and this has worked well for us. We hold our investments for an extended time period and look beyond short term considerations and add to our holdings during difficult market conditions or when a business is facing short term challenges. At the same time, we have avoided sectors and companies which are of poor quality, where management quality is weak or where our understanding of the business is limited and thereby aim to minimize our mistakes as well.
WF: Industry experts believe that a goal based investing fund (such as this one) connects emotionally with the investors and hence promotes long term disciplined investing. If you look at investor behavior in this fund vs your other hybrids and equity funds, does this hypothesis actually pan out?
Chirag - HDFC Children’s Gift Fund is a goal based investment product. In goal-based investing, the investor targets a specific amount of corpus in order to fulfil a particular goal, in this case being able to afford the cost of education of a child. In goal-based investing, there is a mental accounting process involved, where money gets earmarked for a specific purpose. Such goal-based investing inherently requires discipline from the investor to hold the investments for the long-term and to rationalise current spending by balancing current aspirations vis-à-vis future requirements. A parallel can be drawn here to the money invested in a Provident Fund. Money invested in Provident Funds are meant for retirement - investors therefore are reluctant to utilize that money for other purposes, like buying a car, for example. Investors hold on to such investments with discipline till they actually retire. Therefore, goal-based investing helps investors in preventing overspending on less important requirements. As a result, a sizeable corpus can be built over a period of time. Our experience in managing the Fund has been the same - investors hold on to their investments for a long period of time.
WF: You are invested to the extent of ~68% in equity, the number of stocks is 67– is there a case of the portfolio perhaps being overdiversified? What in your view are the pros and cons of focused vs richly diversified portfolios?
Chirag - We have maintained a diversified portfolio for many years and this has worked well for us. There are several advantages to maintaining a diversified portfolio but principally it helps to mitigate risk. It also allows to take an exposure to small and midcap companies where the size of business is relatively smaller and where liquidity may be less.
WF: You hold ~16% in cash, do you see an opportunity to deploy these funds in the near future – which asset class do you see an opportunity in (Debt or equity)? Is your asset allocation dynamic or largely static?
Chirag - We maintain an equity allocation of 66-70% and when the exposure rises above that we typically trim our equity allocation and vice versa. We may deploy this cash in both equities as valuations have come down as well as in debt since yields have risen.
WF: How do you propose to navigate through the current trying times in the market? Where do you see good value now and which are the pockets which you will still stay away from despite the current correction?
Chirag - We follow a stock specific approach and hence would look to add good quality companies whose outlook continues to be sound but where valuations have become more sensible in the current market fall. Thus, there is now predetermined sector bias. We will stay away from businesses where the quality of the business is sub-par or where the management has not demonstrated the ability to create shareholder value or where there are transparency or corporate governance issues.
WF: How does this fund compare to a scheme like Sukanya Samridhi Yojana (apart from the fact that the latter caters only to girls)?
Chirag - HDFC Children’s Gift Fund is a predominantly equity oriented strategy and hence cannot be compared with Sukanya Samridhi Yojana. We have seen in last two to three decades, equities delivering higher returns as compared to other major asset classes. Equity investment is also a great way to beat inflation and it would be detrimental to stay away from equities. For instance, an investment of Rs. 1 lakh compounding at 9% p.a. for 18 years would result in an end value of around Rs.4.7 lakh. In contrast, at a compounding rate of 14% p.a., the investment would grow to around Rs.10.5 lakh at the end of 18 years^^. While such potential for compounding sounds compelling, an investor in equity needs to understand the nature of the asset class and should be able to digest the inherent volatility in the short term. Given this, a great way to invest in HDFC Children’s Gift Fund is through SIPs as the market levels at which the investor enters the fund are averaged out.
WF: Lump sum or SIP – which mode of investment do you suggest to your investors for this fund?
Chirag - As this is a goal oriented product, where the requirement is to build a corpus for a purpose, it is prudent for the investor to adopt the SIP route. SIPs bring discipline to investing, and help in navigating the ups and down in the market, over a medium to long term period. Therefore, start early, invest regularly and stay invested to successfully meet the desired goal of the investment.
*Investors should consult their financial advisers, if in doubt about whether the product is suitable for them.
Scheme Performance Details
Past performance may or may not be sustained in the future. Returns greater than 1 year period are compounded annualized (CAGR). Scheme performance may not strictly be comparable with that of its Additional Benchmark in view of balanced nature of the scheme where a portion of scheme’s investments are made in debt instruments. Load is not taken into consideration for computation of performance. N.A. Not Available. Inception Date: March 02, 2001. The Scheme is managed by Mr. Chirag Setalvad since April 02, 2007.
$$ Adjusted for bonus units declared under the scheme. # Benchmark Index: NIFTY 50 Hybrid Composite Debt 65:35 Index. ## Additional Benchmark Index: NIFTY 50 TRI.
Other funds managed by Chirag Setalvad, Fund Manager of HDFC Children’s Gift Fund
Returns greater than 1 year period are compounded annualised (CAGR). The above returns are of Regular Plan - Growth Option. Load is not taken into consideration for computation of performance. ~Open Ended Equity Linked Savings Scheme with a lock-in - period of 3 years. ^The scheme is co-managed by Chirag Setalvad (Equities), Krishan Kumar Daga (Gold) and Anil Bamboli (Debt). Top 3 and bottom 3 schemes managed by the Fund Manager have been derived on the basis of since inception returns vis-à-vis the benchmark. In case the benchmark is not available on the Scheme’s inception date, the returns for the concerned scheme is considered from the date the benchmark is available. On account of difference in the type of the Scheme, asset allocation, investment strategy, inception dates, the performance of these schemes is strictly not comparable.
Past performance may or may not be sustained in the future. Load is not taken into consideration for computation of performance. TRI - Total Returns Index. N.A. – Not Applicable. Returns as on October 31, 2018.
Different Plans viz. Regular Plan and Direct Plan have different expense structure. The expenses of the Direct Plan under the scheme will be lower to the extent of the distribution expenses/commission charged in the Regular Plan.
^^The above is an illustration using assumed rate of return of 9% p.a. (monthly compounding) only to explain the concept of Power of Compounding. It does not forecast or guarantee the returns in any mutual fund scheme.
HDFC Children's Gift Fund is not comparable with other investment avenues as referred herein due to differing investment objective/s and fundamental differences in product features, investment purpose, investment risks and regulatory environment.
The current investment strategies are subject to change depending on market conditions. For further details, refer Scheme Information Document and Key Information Memorandum available on the website www.hdfcfund.com or at Investor Service Centres of HDFC Mutual Fund. The details are given in summary form and do not purport to be complete. The information/ data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. Neither HDFC AMC and HDFC Mutual Fund nor any person connected with them, accepts any liability arising from the use of this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall al one be fully responsible / liable for any decision taken on the basis of information contained herein
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
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