HDFC Innovation Fund: Outperforming the market benchmark and peers

The HDFC Innovation Fund has completed one year since its launch in July 2025. Since its inception, the fund has delivered a 17.29% return Vs benchmark performance of 1.49% (as on 21^st August 2026, source: Advisorkhoj Research). In this article, we will review the HDFC Innovation Fund.

What is an innovation-theme-based fund?

The progress of human civilization can be seen as a series of innovations, from the invention of the wheel to the latest automotive technology e.g. EV, from the discovery of fire to renewable energy, from crude stone-age weapons to drones, etc. The pace of innovation has accelerated with technological advancements, disrupting industries. The Top 8 companies in the S&P 500 (from Apple to Tesla) are leaders of innovation. These companies have also been leading wealth creators for investors. A thematic fund focused on companies driving innovation may help create alpha in your investment portfolio.

The HDFC Innovation Fund

The HDFC Innovation Fund is a thematic fund that will invest in companies that are adopting innovative themes and strategies. In the one year since its inception, the HDFC Innovation Fund has maintained its position in the Top 5 best-performing funds in the Thematic Innovation peer set. In fact, this year it ranked second (YTD) amongst all the funds in the Innovation theme peer set. The fund is managed by Mr. Amit Sinha.

Fund Outperformance Compared to Category Average and Benchmark

The chart below shows the performance of the HDFC Innovation Fund in various time periods since its launch. You can see that the fund has outperformed its benchmark and all the other funds in the category by a wide margin across various time periods.

Source: Advisorkhoj Research as of 21^st August 2026

Limited downside risks

The chart below shows the drawdowns of the HDFC Innovation Fund versus the benchmark index since the inception of the scheme. You can see that the scheme was able reduce downside risks for investors.

Source: Advisorkhoj Research as of 21^st August 2026

Why invest in innovators - Wealth creators

The EPS growth of the Magnificent 7, viz Apple, Nvidia, Microsoft, Amazon, Meta (Facebook), Alphabet (Google) and Tesla, between 2004 and 2024 was several times higher than S&P 500 EPS growth. The weight of technology in the S&P 500 increased from 6.7% in 1990 to 32.5% in 2024

Source: Bloomberg, NYU Stern, Morgan Stanley; *EPS: Earnings per Share; Data for EPS as of December 2024

Innovation drives economic growth

Success story examples of innovations/innovators in India

Why invest in innovation theme in India?

• India’s ranking in global innovation index (GII) has improved from 81 in 2024 to 39 in 2024. India’s improvement GII rankings is driven by strong entrepreneurial culture. India ranks 3^rd globally in number of unicorns. Patent applications surged by around 45% in 2023. However, there is considerable headroom to add value since our per capita is significantly less than markets with similar GII scores (source: HDFC MF, Global Innovation Index Database, WIPO 2024, NASSCOM, International Monetary Fund).


• India has a large talent pool with skills required to drive innovation. India produces 22.4 lakh STEM (science, technology, engineering and mathematics) graduates versus only 7.9 lakh STEM graduates from the US. India accounts for 16% of global tech talent and is one of the top talent markets in terms of AI and cloud computing skills penetration. While there is a substantial difference in actual costs for different skill levels between US and India, the salary gap on a PPP basis is low. In other words, India will continue to enjoy a significant cost advantage over developed markets in the tech talent pool (source: HDFC MF, EY, India Salary Guide (2024) by Uplers).


• The funding (both seed and venture capital) environment is healthy and provided the impetus for supporting new ideas and converting them into profitable businesses. The $1 - 3MM seed funding rounds doubled between 2017 to 2024, while the $3MM+ seed funding rounds multiplied more than 10X over the same period. VC fund multiplied 9X, from $1.2B in 2012 to $11.2B in 2024. This shows a healthy and growing startup ecosystem, as well as confidence of investors in India’s emerging knowledge based industries. Exits provide confidence to VCs to continue funding promising startups. The exit environment for VCs has improved, with the number of exits doubling since 2021. VC backed IPOs have also seen noticeable growth from 37 IPOs in the 2011-2021 period multiplying more than 2X in the post 2021 period (source: HDFC MF, Source: Tracxn, Indus Valley - Funding Trends 2024, data as on January 17, 2025).


• The digitization initiatives of the Government have created a robust digital public infrastructure which is critical for startups' growth.
  
  

  

  Source: HDFC MF, National Payments Corporation of India, ONDC Website, Motilal Oswal, Indus Valley - Funding Trends (2024)



• The Government has undertaken and implemented key initiatives to support startup and innovation ecosystem in India e.g. Atal Innovation Mission, Prime Minister’s employment generation programme through Ministry of MSME, SAMRIDH scheme startup accelerator through funding and mentorship, ASPIRE a livelihood business incubator to generate self-employment and skills development, Production Linked Incentive (PLI) scheme, Credit Guarantee Scheme for startups, Fund of Funds for startups schemes etc.


• The market has rewarded sunrise sectors with growth in market capitalization and higher weightages in the index.
  
  

  

  Source: HDFC MF, National Stock Exchange

HDFC Innovation Fund - Investment Strategy

HDFC Innovation Fund - Investment Universe

Source: HDFC MF

Current Portfolio Structure of the HDFC Innovation Fund

Source: HDFC MF Factsheet as of 31^st July 2026

Who should invest in HDFC Innovation Fund?

• Want exposure to companies that are adopting innovative strategies. Historical data shows that companies driving innovation can disrupt industries and create wealth for investors


• Seek opportunity to participate in India’s next leg of economic growth led by companies who are innovators or early adopters of modern technologies/strategies


• Want exposure to quality companies with mid- to long-term high growth potential


• Looking for diversification across market cap segments and industry sectors


• Want to invest in a fresh portfolio with no legacy holdings

Investors should consult with their financial advisors or mutual fund distributors if HDFC Innovation Fund is suitable for their investment needs.