As far back as in December 2013, the rhetorical question was asked “Has Prashant Jain lost his magic touch?” The reason for the question was the poor performance of the funds personally managed by Prashant Jain such as HDFC Top 200, HDFC Prudent Fund, etc.
At that time, Vivek Kaul of valueresearchonline, who tracks mutual funds with a microscope, suggested that the reason for the poor show is the massive size of the Fund (Rs. 1.73k crore as of December 2015) which makes it a huge elephant unable to find meaningful opportunities.
Sadly, the poor performance has continued to dog HDFC Mutual Fund to date. Worse, now even Prashant Jain’s stock picks are being called in question.
One of Prashant Jain’s contrarian stock picks was State Bank of India. Unfortunately, the timing was horribly wrong. The growing concern over the poor quality of PSU Banks coupled with an adverse macro-economic environment has sunk SBI’s prospects.
— Jagadees (@eeswardev) February 3, 2016
Sadly Prashant Jain's HDFC MF is worst performing FundHouse
Its HDFC Equity & Top200 has given -20% negative returns https://t.co/vvGeNytpXB
— Rishi Bagree (@rishibagree) February 3, 2016
HDFC Mutual Fund has suffered more embarrassment because Mint 50, which is highly influential amongst mutual fund investors, put the schemes of the Fund “under watch”.
Kayezad E Adajania, an editor at Mint, expounded the reasons for the downgrade in the following words:
“Fund managers such as Prashant Jain of HDFC Asset Management Co. Ltd, who have been banking on better conditions, have been caught between a rock and a hard place as the stocks and sectors that they have bought aren’t showing much signs of improvement. The banking sector – especially the government-owned banks, led by the country’s largest lender, State Bank of India – are still burdened by rising non-performing assets and markets are looking for signs of improvement before they throw their weight behind the sector. And now, having bought these stocks and suffered for more than a year or two, some of the fund managers don’t seem to want to sell such stocks only to be caught off guard; what if the stocks turnaround after they sell?”
Kayezad E Adajania also pointed out that some financial advisers have asked their investors to exit Prashant Jain’s schemes and that they are reluctant to let their investors suffer for “the cost of Jain’s conviction or pride”. “Year 2016 will be a litmus test for Jain since his equity schemes have been in the bottom quintiles in three of the past five calendar years” Kayezad E Adajania added in a grim tone.
It is also stated that Mint has put an “orange” flag on HDFC Funds and advised investors to stop lump sum investments and to continue only SIPs.
Mint50: Curated list of 50 Mutual Funds is back
Puts "orange" flags on HDFC Funds – Says Stop lumpsum, Continue SIPshttps://t.co/l4cjzbtq6w
— Manoj Nagpal (@NagpalManoj) February 8, 2016
The other aspect that has irked investors is that the Mutual Fund has continued to receive huge fees despite the non-performance.
HDFC can't charge 100 crores in fees for delivering a 7% CAGR over a 5 yr period. Fees should be based on 1 & 5 year CAGR and alpha. Period
— Vijay Pahwa (@Vijay_Pahwa) December 16, 2015
However, Prashant Jain is not without his supporters. His loyal fan club of admirers includes the analysts at Morningstar. On the earlier occasion, Larissa Fernand had rushed to his defense on the basis that he is “incredibly diligent with his research” and “sticks to his conviction”. Even in the present crises, Morningstar’s Himanshu Srivastava has called Prashant Jain a “supremely skilled manager” and awarded his Top 200 Fund a “Gold rating”. It was added that “Despite a poor showing in 2015 so far, our conviction in the HDFC Top 200 fund’s long-term prospects remains unchanged”.
So, in the light of the conflict of opinion between the experts, it is difficult to opine on whether investors should stick to HDFC Mutual Fund or jettison it in search of greener pastures!