Active MF Stripped

Stripped down HDFC Top 100 Fund last weekend. 29 years live. Rs 38432 Cr AUM. One of the oldest active large-cap mutual funds in India. Wanted to know what 1.5 percent a year actually buys you above the Nifty 100 TRI it benchmarks against.

The answer is uncomfortable.

Active share is the percent of a fund's portfolio that genuinely differs from its benchmark by weight. The concept comes from a 2009 paper by Cremers and Petajisto. Their finding . funds with active share below 60 percent are closet indexers . they look like the benchmark, charge active fees anyway, and as a group destroy value after fees. Above 60 are the funds that earn their keep often enough to justify the price tag. The plain-English explainer on active share, closet indexing and TER drag is at https://rupeecase.com/learn/

Top 100 Fund clocks in around 40 percent active share against the Nifty 100. The top 10 holdings are the same names as the index in near-identical proportions . HDFC Bank, Reliance, ICICI Bank, Infosys, L and T, Bharti Airtel, ITC, Axis Bank, Kotak, TCS . none of them differ from the index weight by more than 70 basis points. Sector deviations are all within 3 percentage points. The per-stock factsheets for the same names are at https://rupeecase.com/stocks/

Performance reality over 5Y. Direct plan CAGR 14.6 percent. Regular plan 14.0. Nifty 100 TRI 14.2. The Direct plan beats the benchmark by 0.4 net of fees. The Regular plan trails by 0.2 net of fees. The 0.55 percentage point gap between Direct and Regular is the distributor commission baked into Regular . and that gap is the entire reason Regular trails. The active management itself adds almost nothing. Risk metrics sit on top of the index . Beta 0.95, Sharpe 0.85 versus the index 0.82, Max drawdown 23.8 percent versus index 23.4. The fee-stack laid side by side at https://rupeecase.com/compare

The rupee math. Rs 10 lakh held 10 years in the Regular plan pays Rs 15K in TER every year. 60 percent of that . roughly Rs 9K . is being paid for the closet-index portion that an index fund delivers for around Rs 1.2K. The compounded gap over a decade is more than Rs 1.4 lakh. That is the rupee cost of closet indexing.

Two questions worth running on any active fund before money goes in.

One. Active share against the stated benchmark? If 7 of the top 10 names match the index, the answer is below 60.

Two. TER per percentage point of active share? 1.50 on 40 active is 3.75 bps per active point. The other 60 percent is being charged the same rate but it is just replicating an index. The methodology behind a 60-plus active share rule-based picking system is open at https://rupeecase.com/strategies/methodology

Closet indexing is not a moral failure. It is a fee structure problem. A genuinely active large-cap card with active share above 60 sits at https://rupeecase.com/strategies/focused-largecap-20 . And the behavioural-fit test that tells you whether you can hold any equity strategy through its drawdowns is at https://rupeecase.com/risk-profile.html

The full research-note dissection . anatomy, performance, cost structure, the rupee math, the two-question framework, what to do with this information . is in the deep-dive companion to this carousel.

If you pay active fees, demand active share.