Hard Work Pays
After building strengths in debt funds, HDFC Mutual Fund has become a powerful player in equity funds. It has some top performing funds in its stable across categories.
By Research Desk | Sep 15, 2005
It is unlikely that an Indian has not come across Housing Development Finance Corporation or HDFC. The name is connected with housing finance, banking, insurance, stock broking and since you are reading this magazine, mutual funds.
HDFC Mutual Fund is a reputed asset management company in the Indian mutual fund firmament. It has some top performing funds in its stable across categories.
The fund house was started in August 2000. Those were turbulent times in both equity and debt markets. In the US, the greatest bull market was on its way down. The Indian stock market was affected by the bursting of the tech bubble and the scam. The central bank had increased rates and caught the market unaware.
HDFC Mutual Fund braved the despondency of the times and came out with its offering--an income fund, a balanced fund and an equity fund. Its solid brand equity in the market resulted in the fund house raising over Rs 700 crore. Its income fund raised Rs 450 crore, which remains the highest amount collected in an IPO of an income fund. The Liquid Fund was launched soon after.
The fund house has taken the right steps to achieve growth. In its early years, HDFC Mutual Fund was largely focused on its debt products. HDFC Income Fund was the largest bond fund in the country for a long time, but its equity fund portfolio was lagging behind. In order to fill the gap, HDFC Mutual Fund acquired Zurich Asset Management. "Our business is based on three pillars-strong investment returns, ethical selling practices and customer service," says Milind Barve, CEO, HDFC Mutual Fund.
Assets In the beginning, the AMC had more focus on debt funds. Interest rates were coming down and money was pouring into debt funds. On the other hand, equity markets were quite lethargic till 2003. For HDFC, debt assets kept increasing till 2003. Once the Zurich funds came under its fold, HDFC Mutual Fund managed to increase its equity assets. In slightly over a year after its launch, HDFC Income had become five times its original size. This fund grew rapidly for the next two years and in October 2003, it became the largest bond fund in the country with assets of Rs 5,474 crore.
In September 2002, 95 per cent of its assets came from its debt funds and just 5 per cent from equity. When Zurich AMC's parent decided to get out of the fund management business, HDFC Mutual snapped up the equity focused AMC for Rs 160 crore. In September 2003, the amount of equity increased to 12.75 per cent of assets. Besides a large basket of equity products, the Zurich acquisition was also well timed on hindsight. Indian stock markets have risen from the March 2003 levels and HDFC Mutual has been able to get the benefit in terms of fund mobilisation.
The reduction in its longer term debt assets was more than compensated by an increase in its shorter term debt assets as well as the equity funds. Between October 2003 and June 2005, longer term debt assets have fallen almost 70 per cent, while short-term debt assets increased 78 per cent and equity funds rose by 145 per cent. Today, equity funds are almost 30 per cent of the AMC's total assets.
Fund Performance An investor is more bothered about how the fund house performs, rather than how many crores of rupees it manages. The fund house has been an impressive performer. In August 2005, the AMC had seven five-star funds and three four-star funds.
HDFC Children's Gift Fund, a five-star debt-oriented hybrid scheme, aims to generate steady long-term returns and maintains 80-100 per cent of the portfolio in debt related instruments, with stocks accounting for the rest. Children below 18 years are eligible to apply in this sc