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Summary: Three years in, and this multi-cap fund has already earned a five-star rating. We delve into the factors that drove its consistency and check whether it deserves a spot in your portfolio.
Not every fund that turns three deserves attention. But when one crosses that milestone carrying a five-star rating from Value Research, it is worth a closer look. HSBC Multi Cap Fund, launched in January 2023, has done exactly that, and the numbers behind the rating are not a fluke.
A primer on how Value Research rates mutual funds
Before we delve into the reasons behind the HSBC Multi Cap Fund’s stellar five-star rating, it is important to first know how we rate mutual funds at Value Research.
First, the fund’s individual ‘Return’ and ‘Risk’ scores are calculated.
Then, the risk score is subtracted from a return score to produce a composite measure, which is then weighted across two time periods.
For equity and hybrid funds, the five-year score carries 60 per cent weight and the three-year score carries 40 per cent. Funds without a five-year history, as is the case here, are evaluated solely on their three-year score. Only funds in the top 10 per cent of their category earn five stars.
Now, let’s get back to how the HSBC Multi Cap Fund bagged a five-star rating just three years post-inception.
Strong returns across different time periods
The simplest way to assess a fund is to ask how much it has returned, and whether that return was worth the risk taken. On both counts, HSBC Multi Cap Fund holds up well.
Since inception, the fund has delivered returns of 23.4 per cent, well ahead of the category average of 18.3 per cent and the benchmark (VR Multicap TRI) return of 17.3 per cent. This is not a marginal difference. It points to a consistent ability to generate returns above what most peers and the index have managed over the same period.
Rolling returns tell a similar story. The fund delivered nearly 23 per cent on a rolling return basis, compared to approximately 19 per cent for the category and 16.8 per cent for the benchmark. Rolling returns are a more reliable measure than point-to-point figures because they capture performance across multiple entry points, not just one. A fund that looks good only from a specific start date is quite a different thing from one that has rewarded investors regardless of when they entered.
On three-year SIP returns, the fund earned 12.8 per cent, ranking sixth in its category overall and second in terms of annualised returns. For investors who invest systematically, which is how most people should be investing, that is a reassuring number.
A portfolio built for breadth, not concentration
Multi-cap funds are required to spread their assets across large-, mid- and small-cap stocks, and HSBC Multi Cap Fund takes that mandate seriously. The portfolio holds 96 stocks, which is a high level of diversification for a fund of this type.
The allocation leans towards large caps, which make up 43.67 per cent of the portfolio, providing a degree of stability. Mid-cap stocks account for 27.96 per cent and small caps for 28.4 per cent of the fund’s portfolio, ensuring meaningful exposure to growth-oriented segments of the market as well.
Concentration risk is notably low. The top 10 stocks together account for just 23 per cent of the portfolio, and even the single largest holding, Reliance Industries, represents only 3.17 per cent of assets. No single stock can meaningfully derail the fund's overall performance.
On the sectoral side, the top three sectors, Financials (24.91 per cent), Industrials (17.13 per cent) and Consumer Discretionary (11.18 per cent), together constitute 53.2 per cent of the portfolio. This reflects considered sectoral conviction without tipping into overconcentration.
Should you invest in the HSBC Multi Cap Fund?
HSBC Multi Cap Fund has earned its five-star rating through performance rather than promise. Its returns across multiple measures have consistently beaten the category and the benchmark. Its portfolio is well-diversified, concentration risk is low and its construction reflects a disciplined approach to the multi-cap mandate.
That said, past performance is no guarantee of future returns. A five-star rating tells you where a fund has been. It does not tell you where it is going, or whether it fits your specific risk appetite, investment horizon and financial goals.
That is precisely where Value Research Fund Advisor can help. Our analysts go beyond the ratings to assess whether a fund belongs in your portfolio. A subscription gives you access to personalised fund recommendations, in-depth analysis and ongoing guidance, so you are not just chasing ratings but investing with a clear plan.
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