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Introduction to the Fund

HDFC (Housing Development Finance Corporation) provides mutual fund services through one of its subsidiaries HDFC Asset Management Company Ltd., HDFC Mutual Fund house is one of the largest mutual fund service providers in India. They manage about Rs. 335,000 Crore in AUM (as of Dec 2018). HDFC’s distribution network includes 396 outlets which cater to over 2500 locations pan India. They manage a host of funds across various genres. HDFC Long Term Advantage Fund is one such fund which is falls within the category of Equity linked savings scheme. It is a popular fund managed efficiently over the many years.

HDFC Long Term Advantage Fund is an ELSS (Equity linked savings scheme) which qualifies for deduction under section 80C as per the Income Tax India Act, 1961. The fund has a lock-in of 3 years and aims to provide optimal capital appreciation over the tenure. The fund invests in equity related instruments and hence, qualifies as equity mutual fund. The fund has a mandate to invest anywhere between 85% - 100% in equity and equity related instruments. The fund was launched in the year 2001 and has had a decent run in terms of returns over the many years. It manages close to Rs. 1500 crore in assets.

Investment objective of HDFC Long Term Advantage Fund

The scheme provides tax benefit under section 80C of Income Tax India Act, 1961 and therefore has a lock-in period of 3 years. It is aimed at providing capital appreciation by investing predominantly in equity and equity related instruments.

Type of fund and its key features

The fund is an open-ended equity fund and hence, the investor can invest in the fund right through the year. Since the fund offers tax benefit, there is a lock-in period of 3 years. The fund invests in equity and equity related instruments and has only minimal exposure to debt and debt related instruments. The fund is ideal for planning short-term financial goals such as vacation, buying vehicle etc.

Fund houseHDFC Mutual Fund
CategoryEquity : ELSS
Assets under management (AUM)Rs. 1468 crore (As of 31 December, 2018
Launch Date2001
Benchmark IndexS&P BSE Sensex
Risk GradeBelow Average
Return GradeAbove Average
Type of FundOpen-ended
Lock-in Period3 years
Returns since launch (as of 30 January, 2019)21.41%
Minimum investmentRs. 500
Additional minimum investmentRs. 500
Minimum SIP investmentRs. 500
Minimum tenure for investment12
Minimum withdrawal500
Exit load (%)Nil

Current portfolio construction and analysis

The current portfolio construction (as of 31 January 2019) of the fund is as below –

Average Market Cap (Rs. Crore)92,586.4170,604.42
Giant cap companies (%)63.33%49.34%
Large cap companies (%)10.89%15.72%
Mid cap companies (%)15.07%27.33%
Small cap companies (%)10.71%7.77%

It is evident that the fund has a larger market cap to manage as compared to its peers. The exposure to giant cap stocks is significantly high as compared to its peers. The fund seems to have de-risked its portfolio by gaining exposure in low risk stocks. The peers have a higher exposure in midcap stocks which indicates that HDFC Long Term Advantage Fund is a better option from the risk perspective.

The fund’s investment style can be identified as Growth style with a bias towards large cap stocks.

Top 25 holding for HDFC Long Term Advantage Fund (as of 30 January 2019)

CompanySectorAssets (%)
HDFC BankFinancial9.32
Reliance IndustriesEnergy8.78
ICICI BankFinancial8.1
Larsen & ToubroConstruction5.95
State Bank of IndiaFinancial5.24
Vesuvius IndiaConstruction3.22
Carborundum UniversalMetals2.97
Blue StarCons Durable2.76
Maruti Suzuki IndiaAutomobile2.54
Aurobindo PharmaHealthcare2.5
AIA EngineeringMetals2.28
Oriental Carbon & ChemicalsChemicals2.05
Power Grid CorporationEnergy2.03
Ipca LaboratoriesHealthcare1.78
Bank of BarodaFinancial1.31
Tata SteelMetals1.24
Redington IndiaTechnology1.18
Tata Motors DVRAutomobile1.17
Hexaware TechnologiesTechnology1.13
VST Tillers TractorsEngineering1.07

The portfolio has well-known names in the industry. The fund has a well-diversified portfolio of 34 stocks. The exposure towards the top 10 stocks is 60% with top5 stocks accounting for 38.68%. The top 3 sector holding for the fund is 54%. The top 3 sectors held in the portfolio of HDFC Long Term Advantage Fund are Financial, Energy and Construction.

An investor should consider investing in the fund only after evaluating the fund performance over periods of 1 year, 3 year and 5 years. For ELSS funds, it would suffice to look at 3-year returns. The fund performance does not provide any assurance of the type of returns that will be generated in the future. However, it is an indicator of whether the fund has managed to outperform the benchmark and peers.

Trailing returns (%)1 Year3 Years5 Years7 Years10 Years
Benchmark Index-2.213.5813.2912.5315.35

The fund has managed to post higher returns when the market has posted positive returns, however, during a downturn in the market the fund has fallen much more than the index. This is indicative of the fact that there is a need for the fund to de-risk its portfolio further to ensure that it continues to outperform during a downturn as well.

The fund is suitable for an investor who is looking for an avenue to park funds to gain tax benefit under section 80C. The fund can be preferred over its peers primarily due to its performance track record. The mutual fund house is known for its ability to outperform within its category and respective benchmark. Investment in this fund could be aligned with any financial goal which is likely to need funding over 3 years.

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