About two years ago, ace fund manager Mr Anoop Bhaskar—who was earlier with UTI Mutual Fund—took over the reins of IDFC Classic Equity Fund. Since then, the performance of the scheme has shown signs of improvement.

In the past, the performance of the scheme has been decent and was in line with the benchmark. The alpha generated over the benchmark was acceptable, but ranked the scheme lower down the order. The performance of the scheme over the past one year has picked up and ranks among the top 15 schemes. With the decent alpha generated in the past year, the performance of the longer timeframes of 3-years and 5-year has picked up as well. The portfolio rejig in the past one year seems to have proved worthwhile.

Given the strong performance and the optimism of an highly experienced fund manager at the helm, the corpus of IDFC Classic Equity Fund has more than doubled over the past year. Before Mr Bhaskar took over in April 2016, the corpus of the fund was hovering around Rs 150 crore. By March 2017, the corpus touched Rs 850 crore. Over the next one year, the AUM ballooned to Rs 2,500 crore as on February 28, 2018. Clearly, distributors and investors have started to show confidence in the scheme.

In this brief analysis, we take a close look at the features and performance of IDFC Classic Equity Fund.

Investment Objective of IDFC Classic Equity Fund

IDFC Classic Equity Fund has an investment objective to “generate long-term capital growth from a diversified portfolio of predominantly equity and equity related instruments”

IDFC Classic Equity Fund Details

Fund Facts

Category	Diversified	Style	Blend
Type	Open ended	Market Cap Bias	Large and Mid-cap
Launch Date	9-Aug-05	SI Return (CAGR)	12.41%
Corpus (Cr)	Rs 2,530	Min./Add. Inv.	Rs 5,000 / Rs 1,000
Expense Ratio (Dir/Reg)	0.50% / 2.07%	Exit Load	1%

Data as on February 28, 2018.
SI Return as on March 28, 2018.
(Source: ACE MF)

Under normal circumstances, IDFC Classic Equity Fund will allocate…

• 65% - 100% to equity and equity related securities

• 0%-35% to debt and money market instruments

• 0%-35% to securitised debt instruments

Growth Of Rs 10,000, If Invested In IDFC Classic Equity Fund 5 Years Ago

IDFC Classic Equity Fund: Year-on-Year Performance

IDFC Classic Equity Fund: Performance Vis-à-vis Category Peers

Rolling Period Returns

Scheme Name	Corpus (Rs Cr)	1 Year	2 Year	3 Year	5 Year	Std Dev	Sharpe
L&T India Value Fund	7406	30.33	21.90	22.01	26.47	15.43	0.16
Aditya Birla SL Pure Value	3263	34.74	25.43	21.11	28.88	18.18	0.17
Tata Equity P/E Fund	2799	33.35	24.68	19.83	23.09	15.09	0.14
Aditya Birla SL Advantage	5819	26.53	20.16	18.91	23.15	15.41	0.09
Tata Mid Cap Growth Fund	675	27.59	16.14	18.73	24.79	16.74	0.06
SBI Magnum Multicap Fund	4532	23.82	18.25	18.24	21.29	13.43	0.11
DSPBR Equity Opportunities	4936	26.39	20.62	17.98	20.94	14.77	0.12
Aditya Birla SL Equity Fund	8602	25.71	20.75	17.41	22.43	13.99	0.11
Principal Growth Fund	620	33.05	21.98	16.85	21.72	16.60	0.13
Kotak Opportunities Fund	2386	25.62	18.32	16.72	19.63	13.62	0.08
Mirae Asset India Equity	6785	27.06	19.02	16.54	21.30	13.86	0.10
SBI Magnum Multiplier Fund	2218	22.74	15.39	15.83	20.32	14.29	0.07
Sundaram Equity Multiplier	347	26.86	17.38	15.78	17.62	12.07	0.11
HDFC Capital Builder Fund	2654	27.16	18.34	15.44	20.16	14.30	0.11
L&T India Spl. Situations	1286	29.20	17.42	15.27	19.45	13.73	0.08
IDFC Classic Equity Fund	2530	27.13	19.09	15.24	16.48	13.92	0.08
Templeton India Growth	612	27.84	19.00	15.23	17.80	14.51	0.10
Reliance RSF-Equity Option	3295	27.13	15.82	15.20	18.38	16.62	0.07
ICICI Pru Multicap Fund	2873	19.48	15.64	14.46	19.06	12.50	0.08
Franklin India Opportunities	659	20.75	14.08	14.29	18.70	13.99	0.03
Essel Equity Fund	239	22.88	16.13	13.67	15.47	13.36	0.06
DSPBR Equity Fund	2330	24.94	16.71	13.64	17.35	15.87	0.05
HSBC Multi Cap Equity Fund	614	23.13	16.92	13.60	18.99	14.93	0.05
Tata Equity Opportunities	1288	19.00	13.58	13.57	18.08	13.84	0.03
S&P BSE 200		21.84	14.21	10.61	14.38	13.23	0.02

Returns are on a rolling basis and those depicted over 1-Yr are compounded annualised.
Data as on March 28, 2018
(Source: ACE MF)  

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

IDFC Classic Equity Fund ranks much lower down the order based on its three-year rolling period performance. The uptick in performance is skewed to the recent years. In the 1-year and 2-year rolling periods the fund has outscored the benchmark by nearly 5-6 percentage points. Making its performance better than average. Due to its bland performance in the earlier periods, the alpha is not encouraging on the 5-year rolling returns.

The risk of IDFC Sterling Equity Fund is marginally higher than benchmark. But compared to some of the top peers, the volatility is much lower. Given the overall mediocre performance, the risk-adjusted return does not seem very encouraging.

The top five multi-cap funds based on the 3-year rolling period performance include—L&T India Value Fund, Aditya Birla SL Pure Value, Tata Equity P/E Fund, Aditya Birla SL Advantage and SBI Magnum Multicap Fund.

Investment Strategy of IDFC Classic Equity Fund

IDFC Classic Equity Fund will endeavour to invest in well-managed sustainable businesses whose shares are available at reasonable value through a process of disciplined research. The portfolio will aim to provide part ownership to investors in some of the best run companies in India. The portfolio of securities will be well-diversified across sectors, so identified, to mitigate overall risk. As IDFC Classic Equity Fund is expected to be part of the core long-term equity holdings of the investors, a well-balanced and prudent style of fund management will be adopted to endeavour to deliver good returns at controlled levels of risk. The guiding principles while managing the portfolio are summarised below:

1. Stock prices are directly correlated to company profits over the medium to long term

Fund management would focus primarily on business fundamentals of the underlying company. The Equity Research process will endeavour to acquire a robust understanding of the dynamics of the underlying business. This would form the basis for forecasts on future profitability and sustainability of cash profit growth. Stock prices of companies that can sustain periods of high cash profit growth will outperform the markets over the long term. Investors entering this scheme are therefore expected to have at least a 2-3 years’ time horizon.

2. Margin of Safety

The fund managers will look to build a “margin of safety” while making forecasts on business profitability. “Margin of safety” will also be the guiding principle while evaluating a company’s current market price. The portfolio would also be protected from company specific risks by constantly monitoring the economic and business environment and changes in management strategy.

3. Acquire stocks at reasonable value

Once good businesses are identified, stocks would be endeavored to be acquired when they are available at a reasonable value. Overall market corrections and stock price falls due to temporary factors that don’t affect long-term profitability are an excellent opportunity to buy stocks cheap.

4. Stay fully invested over most periods

IDFC Classic Equity Fund will not try to profit by predicting overall market direction based on technical indicators or momentum. It will generally stay fully invested in equities to give investors the full advantage of a rise in the markets that is inevitable given the current trajectory India’s GDP growth. IDFC Classic Equity Fund may however hold cash during periods where in the view of the fund manager the market valuations have run ahead of its fundamentals or when the fund manager is unable to identify stocks at a reasonable value. It may also hold cash to meet anticipated redemptions or to tide over temporary adverse market developments.

IDFC Classic Equity Fund - Portfolio Allocation and Market Capitalisation Trends

IDFC Classic Equity Fund – Top Portfolio Holdings

Top 10 Stocks   Stocks % of Assets HDFC Bank 4.77 Infosys 2.92 Larsen & Toubro 2.85 ICICI Bank 2.44 ITC 2.29 Reliance Industries 2.27 Kotak Mahindra Bank 2.18 HDFC 1.87 Future Retail 1.85 State Bank Of India 1.63	Top 5 Sectors
Holdings (in %) as on February 28, 2018 (Source: ACEMF)

IDFC Classic Equity Fund has a portfolio of 88 stocks. The top 10 holdings of the scheme account for 25% of the total portfolio. As can be inferred from this data,  the portfolio of the large-and mid-cap fund is extremely diversified. None of the stocks among the top holdings account for more than 5% of the assets. The top holdings of the scheme includes index heavy weights such as HDFC Bank, Infosys, Larsen & Toubro, ICICI Bank and ITC.

Banks and financials lead the list of sectors with an allocation of 17% and 10% each. Auto Ancillaries account for 7.2% of the portfolio, while software stocks and petroleum stocks account for about 5% of the portfolio each.

Top Gainers in IDFC Classic Equity Fund's portfolio

Among the top stocks in IDFC Classic Equity Fund’s portfolio were Reliance Industries, Future Retail Ltd., Apollo Tyres Ltd., Mahindra & Mahindra Financial Services Ltd. These stocks rallied 54%, 107%, 46%, and 48% respectively. Of these, the first two stocks were present among the top holdings in February 2018.

Minda Industries Ltd., Mastek Ltd. and DCM Shriram Ltd. were some of the other top stocks in the portfolio, with an exposure under 1%. These stocks returned 158%, 176%, and 105% respectively.

Among the laggards in the portfolio were ITC Ltd., State Bank Of India, RBL Bank Ltd and Axis Bank Ltd. These stocks added little value to the portfolio.

Suitability of IDFC Classic Equity Fund

Though the market has corrected, the margin of safety is not conducive, unless you hold a very high-risk appetite. Hence, it is better to be very selective in you approach while building your investment portfolio. The same strategy should be adopted when selecting equity-diversified schemes.

Large- and mid-cap schemes give the best of both worlds—stability and wealth generation. However, if the scheme does not manage its assets well, it can turn in to a wealth destroyer.

While on the returns front, IDFC Classic Equity Fund has generated decent returns, in terms of risk-adjusted returns, it is not very encouraging.  Hence, you need to decide whether to invest in this scheme after due consideration of other schemes in the category.

Prefer mutual fund schemes that follow robust investment processes and systems, as against those indulging in momentum playing or even those that are extra-cautious. Both the latter investment strategies can lead to inefficient returns.

If you opt for large-and mid-cap funds, do ensure that the investments is in line with your financial goals. If you are not sure about how to align these schemes with your tax planning or financial goals, do consult your financial planner or investment advisor.

Note: This write up is for information purpose and not a recommendation to buy or sell the mutual fund scheme. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor.

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