Mutual Funds

The biggest of ‘em all

AARATI KRISHNAN | Updated on November 12, 2011

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Evidence suggests that investors set store by a fund's long-term record, rather than just flash-in the-pan returns.

It is common perception that retail investors in mutual funds are a fickle lot. However, a ranking of the 500-odd equity funds in the market today, by their asset size, reveals fairly mature investor behaviour.

Investors have made a beeline for the most consistent performers among equity funds, placed most of their bets on plain-vanilla schemes and have stayed put in funds which have seen a dip in short-term returns.

Been there, done that

The ten largest funds are those which have been in existence for six years or more, with half the funds even boasting a ten-year track record. That investors have placed the maximum faith in these funds suggest that they are going by a fund's long term record, rather than just by flash-in the-pan returns for a year or two.

The two consistent top quartile performers from the HDFC stable – HDFC Top 200 Fund and HDFC Equity Fund – are the largest schemes. Each of the top ten funds managed assets worth Rs 3,000 crore or more, notable given that crossing Rs 1,000 crore in assets was a cause for celebration in the equity fund category not too many years ago.

That funds such as UTI Dividend Yield, DSP BlackRock Top 100 Fund, ICICI Pru Dynamic, Franklin India Bluechip have stayed in the top quartile this past year suggests that size isn't an impediment to performance in the diversified fund category.

Not all of the top ten funds however have managed great recent returns. Reliance Growth and Magnum Taxgain have faced a slippage in performance in the last one year, but figure among the top ten funds by assets. At the other extreme, there were 68 equity funds that manage assets of Rs 10 crore or less. This category was dominated by newcomers to the mutual fund space, index products and exchange traded funds.

Preferred categories

What do the asset rankings of funds show about the investor preferences? One trend is that Indian investors haven't taken in a big way to passive investing. All the index funds and exchange traded funds together managed a measly Rs 2,500 crore, just 1 per cent of the industry's equity money.

Two, newfangled ideas such as global feeder funds and fund of funds are yet to make significant headway with investors. Global funds managed just over 4 per cent of the industry's assets by value.

Three, after chasing different themes over the years, retail investors also seem to have settled, finally, on plain vanilla diversified equity funds.

Nearly 70 per cent of the equity assets today lie with the diversified equity funds, while sector funds manage 17 per cent. In the thematic category, infrastructure funds managed the largest amount of money at Rs 28,223 crore. Given that infrastructure stocks have been lacklustre performers in the past two years, the size of assets still lying with the category is surprising.

Yet with this category commanding 10 per cent of equity assets, fund houses may need to indicate the way forward for investors in these funds.

Published on November 12, 2011

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