I have decided to invest in equity funds and short-listed HDFC Equity and Franklin India Bluechip. Which of these two funds should I invest in?
Our answer is both. HDFC Equity and Franklin Bluechip are fine funds and it is very difficult to choose one of them. Both have a long history of excellent performance and have consistently figured in the top quartile in their peer group.
There are some glaring differences between the two funds. First, Franklin India Bluechip is a pure large-cap fund, whereas HDFC Equity does not have any clearly stated capitalisation preference. Like most other equity funds, it is mostly into large-caps with a smattering of mid-caps.
Franklin Bluechip follows a more steady style of management. It is not prone to switch stocks and sectors. The fund has held on to its energy sector holdings like HPCL and BPCL even though disinvestment of these two companies has been put on hold. HDFC Equity, on the other hand, can quickly switch sectors. It dumped HPCL when the Supreme Court did not allow privatisation of these companies.
HDFC Equity's energy sector exposure moved from 9.14 per cent in September 2003 to nothing in the very next month. Bluechip still maintains 17.64 per cent exposure to the sector (20.81 per cent in September 2003).
Going further back in early 2003, when Infosys crashed after its last quarter results Bluechip continued to hold on to the stock and even picked up more as the stock hit rock bottom. HDFC Equity on the other hand had a more modest exposure (5 per cent) and this was quickly brought down to zero in the next few months.
HDFC Equity is also more focused as it concentrates its portfolio on 15 to 20 stocks. Bluechip is usually more spread out having up to 30 stocks, though it has 20 stocks at the moment.
The only discernible difference between the performances of these two funds occurred in 2000 and 2001, when one fund did better in one year and the other in the other.
In 2003, HDFC Equity has done slightly well. But then there have been other years when Bluechip has been in the driving seat.
Both funds have many similarities. The first similarity is that both funds have fund managers, who have been with the schemes for many years. Both managers tend to stick to the investment mandate and are not known to go overboard. And, both seem to have mastered the art of finding their way to the top of the performance tables.
By investing in these two funds, you are also diversifying across management styles. Together, both these funds give you a large-cap portfolio with a garnishing of mid-caps. Both these funds are for keeps and can form the core of your equity portfolio. With a category beating performance across time periods these two funds will ensure that your money grows over time.