HDFC Equity Savings Funds: One of the best performing equity savings funds in the last 3 years

What are equity savings funds?

Equity savings funds are hybrid mutual fund schemes which have minimum gross equity exposure 65% and minimum 10% exposure in debt. Equity savings funds can hedge their equity exposure to reduce their net equity risks.

How equity savings funds work?

• Arbitrage: Arbitrage is defined as risk free profit, by exploiting pricing mismatches in the market. A simple example of arbitrage is cash and carry, where you buy a stock and simultaneously sell futures of the same underlying stock. The futures premium or spread is risk free profit, irrespective of whether the share price moves up or down.


• Debt and Money Market: The fixed income / money market portion of the portfolio generates income and provides stability in volatile markets. Fund managers usually employ accrual strategy or may take duration calls depending on their interest rate outlook.


• Active Equity: Equity savings funds take active (un-hedged) exposure within specified allocation ranges. Fund managers may increase or decrease active equity exposure depending on market conditions. The proportion of active or unhedged equity, also known as Net Equity, and the hedged equity (arbitrage portion) determines the risk profile of individual equity savings funds. Different equity savings fund may have different risk profiles depending on their net equity exposures.

HDFC Equity Savings Fund

HDFC Equity Savings Fund has been one of the best performing equity savings funds in the last 3 years. The fund was launched in 2004 and has consistent track record of producing inflation beating returns (see the chart below). The CAGR returns since inception of the fund is 9.24%. You can see that the fund was able to give higher returns compared to traditional fixed income investments.

Source: Advisorkhoj Research, as on 29^th September 2023. Disclaimer: Past performance may or may not be sustained in the future

Systematic Investment Plan in HDFC Equity Savings Fund has also produced consistent inflation beating returns and higher returns than traditional fixed income investments. If you had invested Rs 10,000 per month in the HDFC Equity Savings Fund through SIP since inception of the scheme you could have accumulated a corpus of over Rs 60 lakhs with a cumulative investment of just Rs 23 lakhs. The SIP XIRR since inception is around 9.28%.

Source: Advisorkhoj Research, as on 29^th September 2023. Disclaimer: Past performance may or may not be sustained in the future

Rolling Returns

Some investors argue that point to point returns are biased by the performance of a fund in prevailing market conditions. To avoid that bias we are comparing the 3 year rolling returns (rolled daily) of HDFC Equity Savings Fund versus the category average since 1^st January 2015, which was when the equity savings funds were introduced for the first time. We have chosen 3 year rolling period because investors should have minimum 3 year investment tenures for equity funds. You can see that the scheme outperformed the benchmark index with very high of consistency (see the chart below). The average 3 year rolling returns of the fund over this period was 9%, while the category average was much lower. You can also see in the table below the chart that the scheme was able to provide better downside risk limitation relative to the peers and at the same time was able to give 8%+ returns much more consistently than the peers (nearly 70% of the times versus on 15% for the category).

Source: Advisorkhoj Research, as on 31^st October. Disclaimer: Past performance may or may not be sustained in the future

Downside Risk Protection

In the table below we have shown some of biggest market drawdowns since the inception of the HDFC Equity Savings Fund. You can see that the fund was able to limit drawdowns in extreme market conditions. As such, this fund may be suitable for investors who do not have high risk appetites.

Source: Advisorkhoj Research, as on 29^th September 2023. Disclaimer: Past performance may or may not be sustained in the future

Risk return plot compared to peers

In the scatter plot chart below, we have plotted 3 year CAGR returns of all equity savings funds versus their 3 year standard deviations. You can see that HDFC Equity Savings Fund (circled in red) was able to beat many peers in returns without too much incremental volatility.

Source: Advisorkhoj Research, as on 31^st October 2023. Disclaimer: Past performance may or may not be sustained in the future

Current net equity allocation versus peers

HDFC Equity Savings Funds (circled in red) maintains slightly higher net equity allocations compared to the category average.

Source: Advisorkhoj Research, as on 29^th September 2023. Disclaimer: Past performance may or may not be sustained in the future

Why invest in HDFC Equity Savings Fund?

• In the current market scenario, where bond yields are showing a hardening trend and infl¬ation expectations have not lowered as much as the market was expecting, moderate to conservative investors are left with fewer options to park their money for the medium to long term, in a tax-efficient manner.


• At the same time, these investors may not be comfortable taking exposure to pure equity-oriented products as volatility has risen due to uncertainty about future interests and geopolitical factors including the conflict in West Asia.


• An asset allocation based approached focused on limiting downside risks and potential higher returns than traditional fixed income investments may be suitable for investors.


• HDFC Equity Savings Fund has a strong performance track record across different market conditions.

Who should invest in HDFC Equity Savings Fund?

• Investors who want capital appreciation and income over long investment tenures


• Investors who do not want high volatility in their portfolios


• Investors with minimum 3 to 5 years investment horizon


• New investors or investors who do not have experience of volatile markets can invest in this scheme


• You should consult with your financial advisor or mutual fund distributor if HDFC Equity Savings Fund is suitable for your investment needs.