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HDFC Mutual Fund’s scheme document reported a 20.91% annualised return since inception for the Direct Plan of the HDFC Mid Cap Fund.
Investors should consider their financial goals, investment horizon and ability to tolerate losses before choosing a mid-cap fund.
Long-term investing in equities can create substantial wealth when investors stay invested through market cycles. One example is HDFC Mid Cap Fund Direct Growth, which has delivered strong returns over the years and rewarded investors who remained invested for the long term.
Had an investor put Rs 10 lakh in HDFC Mid Cap Fund Direct Growth in 2013, the investment would be worth around Rs 1.25 crore today, based on the fund’s historical NAV performance. However, the exact value depends on the date of investment and the date on which the investment is valued.
Rs 10 Lakh would have become around Rs 1.25 Crore
The HDFC Mid Cap Fund is an open-ended equity scheme that predominantly invests in mid-cap companies. According to HDFC Mutual Fund, the scheme follows a strategy of maintaining at least 65% exposure to mid-cap stocks. The fund is classified as Very High Risk, making it more suitable only for investors who can tolerate significant market fluctuations.
The fund’s Direct Plan was introduced on January 1, 2013. HDFC Mutual Fund’s scheme documents show that the Direct Growth option had an allotment NAV of about Rs 18.799 at the beginning of the direct-plan period.
An investment of, let’s say, Rs 10 lakh at that NAV would have purchased roughly 53,194 units. Now, at an NAV of around Rs 231, the value of those units would be about Rs 1.23 crore
With the NAV subsequently moving higher, the investment can be around the Rs 1.25 crore mark, depending on the precise investment and valuation dates. This means the original investment would have grown more than 12 times over the period.
What made the difference?
The biggest factor behind this wealth creation was not simply the fund’s returns in any single year. It was the combination of long-term compounding and staying invested through different market cycles.
Mid-cap stocks can experience sharp falls during market corrections. However, they can also deliver strong growth when the economy and corporate earnings expand.
HDFC Mid Cap Fund has historically invested in businesses across different industries. The objective is to identify mid-sized companies with reasonable growth prospects, sound financial strength and sustainable business models.
This approach has helped the fund participate in India’s long-term economic and corporate growth.
A 20% plus annualised return
The investment example becomes particularly interesting when viewed through the lens of annualised returns. The fund’s long-term performance has been in the vicinity of 20% annualised for the Direct Growth plan over the period beginning in 2013. HDFC Mutual Fund’s scheme document reported a 20.91% annualised return since inception for the Direct Plan, based on data available at the time of the document.
An annual return of around 20% may not sound extraordinary when viewed for just one year. But over a decade or more, the impact of compounding becomes enormous.
For example, Rs 10 lakh growing at roughly 20% annually can cross Rs 60 lakh in about 10 years and move towards Rs 1.5 crore over a longer period, depending on the exact holding period and return.
The journey was not smooth
It is important not to assume that the investment would have grown steadily from Rs 10 lakh to Rs 1.25 crore. Equity markets go through periods of sharp corrections, and mid-cap funds can be particularly volatile. Investors would have experienced periods when the value of their portfolio declined significantly.
For example, the fund’s own historical performance shows that returns have varied considerably across different market conditions. Therefore, an investor who invested Rs 10 lakh in 2013 would have needed the patience to remain invested during market corrections instead of exiting whenever the portfolio temporarily fell.
HDFC Mid Cap Fund: What investors should know
The scheme was originally launched in June 2007, while the Direct Plan dates from January 2013. This distinction is important because the fund has a longer overall history than the Direct Plan’s performance history.
HDFC Mutual Fund describes the scheme as an equity fund predominantly investing in mid-cap stocks. Its stated investment approach focuses on companies with growth potential, financial strength and sustainable business models.
However, past performance should not be interpreted as a guarantee of future returns. HDFC Mutual Fund itself cautions that past performance may or may not be sustained in the future.
The Rs 10 lakh-to-Rs 1.25 crore example highlights an important lesson for mutual fund investors: time can be more important than trying to predict every market movement. A long investment horizon allows returns to compound on previous returns. But this does not mean every mid-cap fund will generate 20% returns, nor does it mean investors should select a fund solely because of its past performance.
Investors should consider their financial goals, investment horizon and ability to tolerate losses before choosing a mid-cap fund, as they are high-risk funds.
Disclaimer:Disclaimer: The views and investment tips shared in this article are for general information purposes only. Readers are advised to consult a certified financial advisor before making any investment decisions.
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