Are investors giving up on HDFC mutual fund schemes?

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Is HDFC Mutual Fund, one of the top fund houses in India with several prominent schemes, losing its charm among investors?

A report by Morningstar India shows that the fund house is at the bottom of the inflows chart in the FY 2021-22 so far. Many HDFC schemes have garnered the lowest inflows in their respective categories.

HDFC AMC over the quarter ended September 2021 witnessed net outflows of approximately Rs 1,049 crores. Two funds- HDFC Liquid Fund and HDFC Low Duration Fund cumulatively witnessed net outflows of a little over Rs 12,000 crores during the same period.

Large institutions typically choose to park their surplus monies for the short term in these debt schemes. Any major net outflows from these funds can be a drag on the category’s and AMC’s net flows. On the equity side, popular scemes like HDFC Mid-Cap Opportunities, HDFC Top 100, HDFC Small Cap and HDFC Flexi Cap have been the lowest groccers in their respective categories.

It is also important to note that funds like HDFC Short Term (Rs 1,128 crores), HDFC Corporate Bond (Rs 1,175 crores) HDFC Overnight Fund (Rs 4,294 crores) and HDFC Credit Risk Debt (Rs 664 crores) were some of the funds where the net inflows during the quarter were the highest in their respective category. Experts believe that due to the underperformance of the value style of investing, many investors have moved away from the HDFC schemes.

“The exits have been primarily from HDFC Flexicap- Rs 1,379 crores, HDFC Midcap Opportunities- Rs 734 crores and HDFC Large Cap- Rs 666 crores during the quarter. HDFC Funds are run with a consistent value bias. Since 2018, growth stocks have performed significantly better than value stocks, but value stocks have made a comeback in the last one year,” said Melvyn Santarita, Research Analyst – Manager Research, Morningstar Investment Adviser India.

“Given their value investment style, these funds underperformed their peers when growth style was in favor, but made a comeback in the last 1 year as value came to the fore. Such market cycles are par for the course. Investors need to be cognizant of fund manager styles and look at performance across market cycles, rather than redeeming funds on shorter term underperformance,” said Santarita.

Many advisors also believe that even though HDFC funds have a strong return track record, these schemes have a tendency of going through long periods of underperformance. If you see the risk-rating of these schemes, many of the popular equity funds from HDFC AMC have a higher risk compared to the respective category. However, advisors also say that for the long-term investors, who understand the investment strategy of the fund house, HDFC schemes are a good bet.

“In general, HDFC funds have had more concentration of outperformance. They may lag their peers and group for a longer time, and then close the gap in a short period. The performance of HDFC Flexi Cap is an illustration – it is in the bottom half when it comes to 3-y and 5-y performance, but has done well in 1-Y comparisons,” said SR Srinivasan, Founder, SriNivesh, a financial planning firm, based in Chennai.

“Obviously, the subpar performance over the last few years would have contributed to the investors’ perceptions and hence outflows,” said Srinivasan.