What does the merger of funds by HDFC MF mean for investors?

The three schemes are HDFC Long Term Advantage Fund, an ELSS scheme, which was discontinued for subscription in 2018 as part of the scheme’s reclassification and rationalization exercise; and two close-ended schemes – HDFC EOF – II – 1126 d May 2017 and HDFC EOF – II – 1100 d June 2017, which are expected to mature on 14 January 2022 and 20 January 2022 respectively.

Suvjit Ray, Head-Products, IIFL Securities said when unitholders get merged with one of the invested schemes, he said: “Merger of MF schemes is usually not a cause for concern for the investors. The process is well regulated and the investments of all the unit holders are safely taken care of in the merger process.”

He said, “Investors however should look at the nature of the surviving scheme i.e. what is the name/category of the scheme which will remain post-merger. If they are not willing to invest in any other category due to pre-existing exposure or that If they don’t like the category, they may consider exiting or switching to a more suitable plan.”

Investors of all the three merged HDFC schemes have been given a 30-day load-free exit window to redeem their investments, if they so desire. For ELSS Scheme & – HDFC EOF – II – 1126D May 2017, the last date is January 14, 2022, while for HDFC EOF – II – 1100D June 2017 the window is open till January 20, 2022. Unitholders of HDFC Large and Mid-Cap Fund, with which other schemes have been merged, have also been given an option to leave till January 20, 2022, irrespective of all the features of the scheme, as per HDFC MF. Investors can opt to exit later with exit load, if any.

fundamental properties

All the three merging funds are quite large-cap oriented, while HDFC Large and Mid Cap also has significant exposure to mid-caps, as the category mandates a minimum investment of 35% each in large and mid-cap stocks.

As per data from Geojit Financial Services, “HDFC Large & Midcap Fund currently runs on an allocation of 52% in Large Cap and 42% in Mid Cap. But the 3 schemes listed for merger with this scheme are Large Cap (86%). ) has higher allocation and only nominal allocation in the middle and smaller segment (13%) of the portfolio.

Behind the large universe for stock selection, HDFC Large and Mid-Cap Fund looks to be well diversified in comparison to other funds. According to data from Value Research, portfolio exposure to the fund’s top 10 stocks and top three sectors stood at 33 per cent and 45 per cent, respectively. The exposure to other funds has been more than 50 per cent.

To track how HDFC Large and Mid-Cap Fund has performed, we looked at the Upside Capture Ratio from Morningstar. The ratio, which reflects whether a given fund has outperformed a broad market benchmark during periods of market strength, has stood at 109 on a range of 100 (the higher the better).

However, the drawdown for the fund, which measures the percentage decline of a scheme between its peak and its subsequent trough during a specific period, from a category average of -28.69 per cent during the four months ended March 31, 2020 – 30.44 percent higher. ,

HDFC Large & Mid-Cap Fund is managed by Gopal Agarwal since July 16, 2020.

Prior to joining HDFC Mutual Fund he has worked with DSP Mutual Fund, Tata AMC, Mirae Asset Mutual Fund and SBI Mutual Fund.

HDFC Large and Mid Cap Fund

What should investors do?

One of the important points to be noted by investors in the schemes being merged is the category change. When these schemes are merged, the new scheme may have more exposure to the midcap, to fulfill the order of the scheme, thus increasing the overall risk level.

Jeevan Kumar, Head of Investment Advisory, Geojit Financial Services, said, “Though the Risk-O-Meter shows the same risk level for all these four schemes, the volatility level is different. Hence, for those who want to invest more in their investments. Can’t take the risk, they can shift to any large-cap oriented scheme. Otherwise, there is nothing wrong in staying invested in the existing scheme and accepting the merger.”

Pointing to the volatility, Harish Sharma, Fund Manager, Motisons Shares Pvt Ltd, said, “The performance of the next two quarters will be volatile due to major changes in mid cap and small cap balancing of these schemes in view of the new changes. But long-term investors can hold the units considering Gopal Agarwal, the fund manager at HLMF has a good track record.”