In equity MF, don’t go by AMC’s number of schemes
Aug 11 2014
Analysis shows high variance in performances of different equity schemes from the same fund house
A fund house offering more than one multicap equity schemes or more than one largecap equity schemes would have an official rationale for doing so, which often tend to be on the basis of subtle differences such as dynamism in allocation to largecap or madcap stocks or focusing on a bigger or smaller universe, where the benchmark may vary between a CNX 200 and a CNX500 index.
These tenuous differences do not matter much to most investors seeking exposure to a simple equity asset class through a diversified equity scheme. Generally, fund houses having more equity schemes will also have higher cumulative corpus size of their schemes. The size of a fund house’s equity corpus generally plays an important part in pushing its schemes by most agents or distributors. Un-suspecting investors are vulnerable to a fund agent’s sales pitch for a fund house having a scheme in the list of top 10 or top 20 performers.
Returns given by multiple schemes of a fund house in the same equity diversified (largecap or multicap) category vary more often than not, and they vary widely. One scheme of a fund house may be a top performer but another in the same category may be a little or far down in the performance rankings.
We analysed long-term performance of equity diversified schemes having largecap or multicap orientations to evaluate the performance of multiple schemes belonging to the same fund house. The analysis excluded index funds or exchange-traded funds and included only the actively-managed schemes. Of the 120 schemes which fit into these criteria, as per the Capitaline NAV database, we excluded 39 as they had operational track records for less than seven years.
We looked at the weekly five-year rolling returns given by an equity scheme in the past two years and averaged the returns to arrive at the scheme’s average compound annual growth rate (CAGR). Based on this figure, the 81 schemes analysed were ranked and the schemes were grouped fund house-wise. The average of the five-year CAGR of returns for all the 81 schemes was 9.3 per cent.
The results were revealing (see chart alongside). There were 20 mutual fund houses with more than one equity diversified multicap or largecap schemes and only eight fund houses which had a solitary multicap or largecap equity scheme. Six fund houses had four or more equity schemes.
An analysis of their performance was revealing. Birla Sun Life Mutual Fund had the largest number of equity schemes in our analysis.
Two of them were among the top 10 performers with rankings of four and seven. The performance of the remaining schemes varied widely with the worst performer ranked 58th. In the quartiles of rank, Birla SL MF has three schemes in the first quartile (best performing quartile), three in the second quartile and two in the third quartile.
Franklin Templeton India Mutual Fund, which had six equity schemes in the analysis, also exhibited a mixed trend. Its best performer was ranked 15th while the worst performer was ranked 66th. The fund house had four schemes in the first quartile of rankings, and one each in the second and fourth quartile.
Our analysis also covered six equity schemes of HDFC Mutual Fund, which is among the top two fund houses by size of its overall assets under management. One of its schemes was among the top 10 performers at sixth rank, while the worst performer was ranked 54th. In ranking quartiles, only two of HDFC MF’s six schemes were present in the first quartile, three were in the second quartile and one was in the third quartile.
UTI Mutual Fund, with six equity diversified multicap or largecap schemes, showed among the largest variances in returns among its schemes. Two of its schemes were in the top 10 performers list with rankings of five and nine, but all the remaining schemes performed poorly with ranks of 41st, 51st, 53rd and 61st. This meant the fund house had two schemes in the first quartile, two in the third quartile and one in the fourth quartile.
Reliance Mutual Fund, a behemoth in size like HDFC MF, had five schemes in our analysis. One of these was the best performing scheme among all the 81 schemes analysed. But the variance was high with its worst performing scheme ranked 73rd. Two of Reliance MF’s schemes were in the first quartile of ranking, and one each was present in the second, third and fourth quartile.
In the best 10 performing schemes among the 81 schemes analysed, two were from fund houses that had a solitary equity multicap or largecap scheme each. Quantum MF’s Quantum Long Term Equity Fund, a largecap equity fund, was ranked second best performer in our analysis, and Canara Robeco Equity Diversified Fund, a multicap equity fund, was ranked eight.
The thrust of the findings of the analysis was that by having multiple equity diversified multicap or largecap schemes for reasons justified by them, the fund houses inadvertently stood a better chance of having at least one of their multiple schemes among the top 10 performing schemes or in the top ranking quartile. But if one factors in the performances of their multiple offerings, the scenario that emerges is rather discouraging for investors, even if they get enamoured by the size or breadth of a fund house’s equity schemes.
Said Rahul Mantri, a certified financial planner and mutual fund seller through his firm Midas Touch, “To our clients seeking equity exposure through equity diversified schemes, we first recommend a 50-25-25 exposure ratio to largecap, multicap and midcap equity schemes, and then recommend only those schemes, without looking at the fund house, which have been consistent performers over the years.”
There is no regulatory restriction on the number of equity diversified schemes a fund house can offer. Investors have no choice but to exercise the due diligence before picking the right scheme that can meet their expectations.
FC Research Bureau