Recently, I got query from Facebook to explain HDFC Top 200 mutual fund. So, I decided to write a complete article on that. This fund is the choice of many investors. Giving consistent good returns over a period of time. Must have in any portfolio for long term to create wealth. reasons Reasons and other details are mentioned below.
Type and Investment Objective
It is an open-ended equity fund. The objective is to generate long-term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from companies in BSE 200 index.
- The fund maintains a diversified portfolio of predominantly large cap stocks. It invests in fundamentally strong companies for longer horizon and does not take high cash exposure.
- The Fund manager continues to remain bullish on equities as the valuations are attractive. Though the market sentiment is negative, the key fundamental negative for the market is the higher fiscal deficit.
- The fund manager expects the government to take steps to reduce the fiscal deficit and this should be positive for the equity market. With the 25% decline in the equity markets over last one year the valuations have come down sharply from a PE of 25x at the beginning of 2007 to 12-13x currently as compared to 10x at the bottom of early 2009.
- The 10-year average multiple for the Sensex is 15x. Thus, valuations are below their long term average and not far from the previous market bottom. There are a host of challenges facing us. In India, on the economic front, the high fiscal deficit is a key challenge. It will be critical for the forthcoming budget to address this.
- He believes that the political situation threatens to stifle economic growth. The fund manager hopes that post elections in February, policy initiatives will gather momentum. Most of the large cap stocks are quoting at single digit PE multiple levels and from current levels, investors would be able to make decent returns in the long term.
- He believes the current valuations are below their long term average and for investors with a long term perspective and tolerance for volatility there lies an opportunity to capture not only earnings growth but also an improvement in valuations over time.
- The fund is recommended for moderate and conservative investors with a horizon of 2-3 yrs.
The returns after 1 year of investment are taxes under long term capital gains tax, which is 0% at current tax rates. So, invest for long term and create tax free wealth for you. Also, please note that there is myth that investing in HDFC Top 200 will give you tax benefit under Sec80C; which is not true. HDFC Top 200 fund is not a ELSS fund to give you tax benefit. For ELSS, you can invest in HDFC Tax Saving Fund or Reliance Tax saving Fund.