Most largecap funds fail to match Nifty’s performance

For the average Indian investor, 2017 was a highly satisfactory year. The next one started on a slightly different note and have since tested the skills of the amateurs and the pros alike.

The proof of the investing community’s collective exertions is evident in the performance of large-cap funds: Out of the 31 actively-managed equity funds, only four managed to beat their benchmark indices over the past one year, data from Value Research show. The Nifty gained 12.85 per cent in the period, bucking the recent downtrend in many small and midcap stocks.

Actively-managed large-cap equity mutual funds, with assets under management (AUM) of ₹1,15,048 crore, account for 18 per cent of total equity AUM of Rs 6.56 lakh crore. This means investors in many large-caps did not make spectacular money despite the Nifty’s gains. Axis Bluechip Fund, which returned 8 per cent more than its benchmark, topped the chart. Sundaram Select Focus, Edelweiss Large Cap and IDFC Large Cap also beat their benchmarks by small margins of 1-3 per cent.


“Only five Nifty Stocks have contributed toward two-thirds of market returns in the past one year,” says Mahesh Patil, cochief investment officer, Aditya Birla Sun Life Mutual Fund. These five stocks are Reliance Industries (up 41 per cent), HDFC Bank (up 28 per cent), Kotak Bank (up 41 per cent), Infosys (up 40 per cent) and TCS (up 56 per cent). Since mutual funds hold a diversified portfolio of 30-40 stocks, they could not make the most of the rally in these five outperforming counters.

Patil believes investors need not worry as this underperformance is an aberration and will change in coming months.

Large-Cap Funds Fail to Match Nifty
Many believe that the recent change in definitions of large-cap and other marketcap based funds by the regulator is another reason for the poor performance. A large-cap fund now must invest a minimum 80 per cent in top 100 stocks by six-month average cap to be classified as such.

“There has been carnage in mid- and small-cap stocks over the last six months. This has affected the performance of some large schemes which held the balance 20 per cent of their portfolio in such mid- and small-cap stocks to generate alpha,” says Amol Joshi, founder, Plan Rupee.

Financial planners believe investors could take a longterm view on equities and not go by short-term, oneyear performance.

“It may not be right to compare large cap returns to the benchmark for a one-year period. Investors generally invest in equities with a longer time-frame and this may not be the right comparison,” says Dhirendra Kumar, founder of Value Research.

However, critics believe the scope for adding value in a large-cap fund by an active fund manager is limited, given the narrow universe of 100 stocks from which they must choose. The expense ratio of 2-2.5 per cent in regular plans of large-cap funds could be a deterrent to performance.

“Since the scope to generate alpha is low, the expense ratio for the large-cap fund has to come down,” says Radhika Gupta, CEO, Edelweiss Mutual Fund.