The lack of depth in the stock market and tough regulations have forced mutual funds to bet big on top market-cap companies, putting crores of investors’ money at risk.
In fact, the top 10 market-cap companies have attracted 36 per cent or ₹4.28 lakh crore of the overall equity asset under management of mutual funds of ₹11.83 lakh crore, as of September end.
The equity investment of mutual funds in the top five market-cap companies accounts for 27 per cent or ₹3.17 lakh crore.
The equity asset under management includes pure-play equity schemes, equity-linked savings schemes, 50 per cent of balanced and hybrid funds, exchange traded funds and fund of funds.
On a pure-play equity fund AUM of ₹7.64 lakh crore, the concentration of investment in the top five market-cap companies is even more scary at 41 per cent or ₹3.13 lakh crore.
The country’s largest company in terms of market-cap, Reliance Industries, has received equity mutual funds investment of ₹77,400 crore while HDFC Bank and Infosys have ₹82,900 crore and ₹61,100 crore of public money riding on them.
Few investment opportunities
Sorbh Gupta, Associate Fund Manager, Quantum AMC, said mutual funds are forced to chase the top market-cap companies as they have to deliver more returns than the benchmark index, which themselves are very narrow.
The most popular benchmark equity indices, Sensex and Nifty, have just 30 and 50 stocks respectively while in the US, the most followed Nasdaq and S&P indices are made of 100 and 500 stocks, he added.
In fact, he added, even today Quantum has no exposure to Reliance Industries due to its ESG (environmental, social and governance) score.
Mirae Asset Management Company recently capped învestment in its Emerging Bluechip Fund at ₹2,500 from ₹25,000 a month through systematic învestment plan. It has already stopped lump sum învestment in the fund, which invests in both large and mid-cap stocks.
Though mutual funds do not say in so many words, they are very few învestment opportunities to match the risk-return need of investors, said the CEO of a mutual fund.
Dr Nirakar Pradhan, Chief Executive Officer, PRMIA India, said since fund managers follow a certain index as benchmark, they invest in the same proportion as the index composition due to the risk of under-performance.
Sayalee Khandke, Manager Research, Investica, said the majority of mutual fund managers preferred to stay invested in large-cap companies due to uncertainty regarding the US election. They will now diversify across market capitalisation with the outcome of the US election getting clear, he said.