HDFC Flexi cap Fund completes 26 years; grows 87 times since inception

The wealth creation journey is more about time and discipline than about investing. The discipline is what drives the investment journey and stands through different market cycles and meltdowns. Be it retirement planning or wealth creation, mutual funds have not just survived but navigated through technological disruptions or a black swan event like the Covid-19 pandemic. One such is HDFC Flexi cap Fund which now completes 26 years.

Boosted by the economic reforms, India was a country in preparation to establish itself in the top economies, and at that cusp, amongst the very few private mutual funds was HDFC Flexi cap, launched in 1995.

An investment of Rs 1,00,000 at the inception would now have grown to a corpus of Rs 87 lakhs, while a SIP of Rs 10,000 per month would have grown to a whopping Rs 9.57 crore. The fund has given a CAGR of 18% since inception and the NAV has grown 87 times. Notably, the fund has outperformed the index Nifty 500 with a big margin.

Managed by Prashant Jain, Executive Director & Chief Investment Officer, HDFC Asset Management Co. Ltd, the fund has a total AUM of Rs 25,232 crore as of 31 May 2021.

Flexi cap gives the fund manager a larger map to tread on and more flexibility to scale through different business cycles. Unlike other categories, the Flexi cap gives a free hand to the fund manager to maintain exposure and take risks in different sectors and market caps. Thus, these funds come under a high-risk profile.

Market outlook

The long-term outlook on the markets is always upward; ask any expert how they see the benchmark indices in the next 10 years, and the sentiment reflected across the board is positive. Stock market bulls like Raamdeo Agarwal are betting on Sensex at 2,00,000 in the next 10 years, nearly 4 times of where it stands now.

Prashant Jain says, “We have a positive outlook on the markets over the long term driven by a growth-focused budget, low cost of capital, reasonable valuations, and strong earnings outlook. Though the market rally is getting broad-based, there are select pockets which are still undervalued compared to their long-term averages.”

Investment strategy

The fund is currently overweight on corporate banks & financials and healthcare sector. The fund has 30.8% exposure in corporate banks and financials, while the average in the flexi-cap category is 11.8%.

The fund notes, “With falling slippages and increasing resolution of NPAs provisioning costs are expected to fall sharply resulting in a sharp increase in profitability of corporate banks.”

Similarly, on healthcare, API pricing cycle remains strong, with significant benefit in FY21 from Covid-19 related disruptions. Price erosion is stabilizing in the US for base business products. Starting FY21, Indian generics are entering a wave of major product launches in the US after a gap of six years, says the fund in its note.

Apart from financials, the fund has a higher allocation to energy, industrials, IT, and utilities. The fund has reduced exposure recently in the IT and materials sectors.

Category performance

While the fund has delivered over 18% CAGR since inception, on comparison in the last 10 years, the fund fails to make a cut to the top 10 funds in the flexi cap category.

In the last 10 years, UTI Flexi cap, Aditya Birla Sun Life Flexi cap fund, and Kotak Flexi cap have given over 15% returns while HDFC Flexi cap stands at 12.22%. However, on the AUM front, HDFC Flexi cap is only next to Kotak Flexi cap fund which manages assets worth Rs 36,580.03 crore.

Investing for long term

Two decades of patience and discipline in investing could seem daunting at the beginning of the journey, but it is this situation where the early bird expression comes to play. Specifically, when one is planning for a goal like retirement, an investment that yields long-term growth is crucial.