Smaller funds outsmart biggies in race for returns

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Smaller equity mutual funds have beaten their large-sized counterparts hands down in terms of returns over the past one year, a period marked by a frenzied bull run that lifted the benchmark equity index, CNX Nifty, more than 30 per cent.

Most equity diversified schemes have been outperforming the benchmark equity indices this year, revealed an analysis by the FC Research Bureau. The average one-year rolling returns of 63 diversified equity funds as of June stood at 39.6 per cent compared with CNX Nifty’s 31.9 per cent gain during the same period.

Within the mutual fund universe, small-sized equity-oriented schemes have given higher returns compared with their large-sized counterparts. Eight of the 10 best performing schemes in terms of one-year returns have had smaller corpuses.

Mutual fund houses and agents often tend to draw investors by flaunting the bigger size of a scheme and on the pretext of better returns. But the largest equity schemes seem to be finding it difficult to outsmart their smaller counterparts in the bull run of the past one year.

The top five best performers in terms of one-year returns in the FC analysis happened to be schemes with smaller assets under management (AUMs).

While this is not an exceptional outperformance, it stands out that most diversified equity funds with corpus sizes below Rs 1,000 crore (as per latest month available data) happen to be doing better than the bigger-sized funds.

The average one-year rolling returns of diversified equity schemes with corpus sizes of Rs 1,000 crore or more stood at 38.8 per cent, while that of schemes with corpus sizes between Rs 200 crore and Rs 1,000 crore was higher at 40 per cent.

Schemes with corpus sizes below Rs 200 crore were excluded from this analysis, as they tend to show higher volatility in returns, and thus, depict a distorted picture. Net asset values of only growth plans were considered.

Birla Sun Life Equity Fund (May-end corpus Rs 830 crore) topped the list of performers with an average one-year rolling return of 59.2 per cent in June. It was followed by HDFC Core and Satellite Fund (56.9 per cent), HDFC Premier Multi-Cap Fund (55.6 per cent), Birla Sun Life Advantage Fund (55.4 per cent) and Principal Growth Fund (53.3 per cent).

The four schemes had much smaller corpuses at Rs 270 crore, Rs 310 crore, Rs 420 crore and Rs 320 crore, respectively.

HDFC Equity Fund, which had a corpus of Rs 11,530 crore at the end of April, was the sixth-best performer in the analysis with 52.6 per cent returns and ICICI Prudential Dynamic Plan, with a May-end corpus of 4,330 crore, stood seventh with a return of 51.3 per cent. The next three best performers were again smaller-sized schemes with AUMs below Rs 1,000 crore.

While HDFC Equity Fund was the largest of all the schemes analysed and sixth-best performer in the analysis, the next four biggest equity diversified schemes from the 63 funds analysed, all ended lower down the chart.

HDFC Top 200 Fund with an April-end AUM Rs 10,740 crore stood at the 16th place, Reliance Equity Opportunities Fund (AUM Rs 6,400 crore) finished 11th, and ICICI Pru Focused Bluechip Equity Fund (Rs 6,060 crore) and Birla Sun Life Frontline Equity Fund — Plan A (Rs 5,280 crore) were ranked 29th and 27th, respectively.

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