Experts are often heard saying that size does not matter for a fund. How true is that? How do they measure in performance during their various periods of asset buildup journey? Starting today, RupeeIQ will regularly look at the performance of large funds
The obsession with size is a peculiar problem. Many mutual fund investors seem to think that a big sized fund is better than a fund that is smaller. The fascination for such large funds is partially due to the fact that large funds are also the ones with long track records. As a fund stands the test of time, it attracts more investors than a new scheme. Plus, it is easier to sell a fund that is large. But does a large fund perform? Investors buy a large fund in the expectation that it will do well.
Experts and fund industry officials are often heard saying that size does not matter for a fund. How true is that? How do they measure performance? Does a cliched response ‘fund size doesn’t matter’ help an investor wanting to invest in a fund? Starting today, RupeeIQ will regularly look at the performance of large funds.
We begin with Kotak Standard Multicap Fund, which was earlier known as the Kotak Select Focus. This fund is nearly 10-year old and has assets of over Rs 23,000 crore, making it the largest active-managed equity mutual fund in India. It is also the flagship equity scheme of Kotak Mutual Fund. The fund is managed by star fund manager Harsha Upadhyaya. In RupeeIQ’s assessment, the fund is just meeting expectations today. Read on to know more.
There is hardly any point in looking at 1-year, 3-year, 5-year and 7-year return of Kotak Standard Multicap Fund if you want to know whether its big size is hindering performance. Quite frankly, Kotak Standard Multicap Fund did not become an over Rs 23,000 crore fund just with good marketing. It has previously performed well and that is why investors were drawn towards it. They entrusted the fund with more money. What we want to know is how good is the fund’s performance now when the fund’s size is clearly big.
Take a look at how the fund’s size has moved over the years. At the end of March 2016, Kotak Standard Multicap Fund was about Rs 4,200 crore. In a year i.e. March 2017, it more than doubled in size and became a Rs 9,300 crore fund. Fast forward another year, the scheme neared Rs 18,000 crore size by March 2018.
We at RupeeIQ wanted to see how the fund stacked up amongst other funds as its size grew.
To do this, we looked at all open-ended equity funds (except sectoral, international and thematic schemes). Since we have approximate dates when Kotak Standard Multicap Fund touched size milestones like Rs 5000-cr, Rs 10,000-cr, Rs 15,000-cr and Rs 20,000-cr, we looked at the fund’s performance from one milestone to another.
We also looked at how the fund’s point-to-point return in these periods stacked up against the average fund return.
We did not look at only multicap funds because of the recent Sebi categorization, many funds have changed their cred. When an investor wants to buy a fund, they do not say they want a ‘multicap fund’. They choose a fund from the entire laundry list of schemes available.
We have looked at the fund’s overall rank as well and whether it underperformed or outperformed the average fund return during each period.
Here are the results.
1. At the end of June 2016, Kotak Standard Multicap Fund crossed the Rs 5000 crore AUM mark. By April 2017, it had crossed Rs 10,000 crore AUM mark. So, how did the fund perform in this period?
Let us start by saying that the best fund is this period was L&T Emerging Businesses Fund with 38.71%. The worst fund was Edelweiss ETF – Nifty 100 Quality 30 with just 4.25%.
Coming to Kotak Standard Multicap Fund, its performance was certainly not bad with it clocking 23.27% return at the same time. Out of the 228 funds surveyed during this period, the Kotak scheme was ranked 60th in the overall tally. With 23.27% return, the fund had easily beaten the average equity fund return of 18.97%. So, clearly Kotak Standard Multicap Fund’s Rs 10,000 crore AUM size did not seem to affect its performance in this phase.
RupeeIQ Verdict – Fund exceeds expectations.
2. It took Kotak Standard Multicap Fund just a few months to cross the Rs 15,000 crore AUM mark i.e. October end of 2017. By April 2017, it had crossed Rs 10,000 crore AUM mark. So, how did the fund perform in this period? In this period, SBI Small Cap Fund was the best with 22.54% return while the worst fund Motilal Oswal Midcap 30 Fund that had lost 0.45%.
Kotak Standard Multicap Fund had notched up 9.44% gain in this period when it became a Rs 10,000 crore to Rs 15,000 crore fund. This placed the fund at 166th rank out of 236 funds surveyed. This is a drop of over 100 places from the 60th rank held in the journey from Rs 5,000 crore to Rs 10,000 crore. With a 9.44% return, the fund had failed to beat the average fund return of 11% in this phase. So, early signs of Kotak Standard Multicap Fund’s Rs 15,000 crore AUM size affecting its performance in this phase. At this point, we must also tell you that 6 months performance (April end 2017 to October end 2017) is too short. let us see if the trend continues.
RupeeIQ Verdict – Fund fails to meet expectations.
3. The journey from Rs 15,000 crore AUM to Rs 20,000 crore AUM was longer. Kotak Standard Multicap Fund took 11 months to reach the Rs 20,000 crore AUM mark from Rs 15,000 crore AUM size. Did the fund’s performance improve in this period compared to Rs 10,000 crore to Rs 15,000 crore AUM journey? In this phase of 11 months, UTI Equity Fund was the best performer with 17.16% gain. Reliance Tax Saver ELSS was the worst with 13% NAV drop.
Kotak Standard Multicap Fund was able to generate 5.83% return as it went from a Rs 15,000 crore AUM to a Rs 20,000 crore AUM fund. The 5.83% return placed the fund at 90th rank among the 246 funds surveyed in this period. It is an improvement from the 166th rank in the above phase (from Rs 10,000 crore AUM to Rs 15,000 crore AUM), but it is lower than the 60th rank the fund had when it had touched the Rs 10,000 crore AUM mark. The fund’s 5.83% return is more than the average fund return of 4% in this phase.
RupeeIQ Verdict – Fund just meets expectations.
4. Kotak Standard Multicap Fund at the end of March 31, 2019 was a Rs 23,880 crore fund. That makes it the largest actively-managed fund in the Indian MF industry today. So, how did the fund perform from when it surpassed Rs 20,000 crore for the first time to March 31, 2019? In this period, the best fund return is 8.43% clocked by Reliance Multicap Fund while the biggest loser has been BOI AXA Large & Midcap Equity Fund with nearly 12% NAV drop.
In comparison, Kotak Standard Multicap Fund gained 1.92% in this phase when its AUM grew even bigger and made it the largest actively managed equity fund. The 1.92% gain places it higher than the average fund return at -0.3% in this period. Among 255 funds surveyed, Kotak Standard Multicap Fund in this phase secured a rank of 77th.
RupeeIQ Verdict – Fund just meets expectations.
|Kotak Standard Multicap Fund|
|AUM phase (month-end figures)||Kotak Standard Multicap Fund return %||Average all fund return %||Best fund return % in phase||Worst fund return % in phase|
|Rs 5000 crore to Rs 10,000 crore||23.27||18.97||38.71||4.25|
|Rs 10,000 crore to Rs 15,000 crore||9.44||11||22.54||-0.45|
|Rs 15,000 crore to Rs 20,0000 crore||5.83||4.07||17.16||-13.02|
|Rs 20,000 crore to now (*)||1.92||-0.3||8.43||-11.89|
|For regular plan * Up to March 31, 2019|
|Data source: Fund website NAVs, AUM disclosures|
Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.
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