Smaller fund houses deliver higher returns

Updated on: Apr 24, 2011

While size is much sought after in the mutual fund industry, it is the smaller fund houses which have actually delivered the best returns to investors in the past year.

Consider this. If one averages the returns across their equity schemes, Quantum Mutual Fund, Benchmark Mutual Fund and Daiwa Mutual emerge as the top performers over the past one year, managing returns of 13.4 per cent to 15.8 per cent. These funds are midgets, having under their fold only between Rs 125 crore and Rs 1,500 crore of assets. Their equity assets are lower.

Four other small houses including Mirae and Canara Robeco figure among the top 10 on returns, delivering returns in the range of 10-15 per cent. Top equity managers such as Reliance Mutual, Sundaram Mutual and SBI Mutual have in contrast delivered average one-year returns of 4-7 per cent on their schemes.

Consistency factor

Ranking all the fund houses by their one-year returns, only HDFC, Fidelity and UTI from the larger fund houses make it to the top 10 list. Even over a slightly longer timeframe of three years, smaller managers have fared well.

In fact, five out of the top 10 are small houses. Here again, HDFC and Fidelity among the larger houses delivered consistent returns.

Is it then correct to come to the conclusion that investors should bet only on schemes from smaller fund houses? Not necessarily.

Lacking variety

For one, many smaller fund houses have only a few equity schemes under operation, aiding their ‘averages'. Quantum and Mirae have two and three equity schemes under management respectively.

Two, not too many of these schemes may have a long enough record to judge performance. Most of flagship funds for these funds invest in large-cap stocks, which outperformed the broader markets over the last few years.

Correct size

Here JP Morgan's AMC too needs a mention as all three of its schemes have outperformed indices over the last one-year, but has lagged behind over longer timeframes.

But is managing a smaller number of funds the only way to better returns? It seems so.

Fidelity with just six funds and DSP Blackrock with 10 schemes under management have seen consistent performance from most of them. Of course HDFC with 14 schemes has seen 11 of those perform consistently over one- and three-year periods.

But with 17-21 schemes under operation, fund houses such as Sundaram, Tata, SBI, Birla Sun Life and Reliance have found it more challenging to deliver a consistent show across schemes. Only half of their funds have outperformed indices such as the Sensex, Nifty or BSE 100.

Published on May 17, 2011

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