Performance report: Only 4 out 10 biggest equity mutual funds beat their benchmark in 1-yr, 3-yr and 5-yr periods

Lump sum investment in two popular equity funds fail to generate alpha in 1 yr, 3 yr, and 5 yr phases. See who have beaten and also underperformed benchmarks

Kumar Shankar Roy Sep 13, 2019

PMS performanceThe 10 biggest actively-managed equity funds in the Indian MF market between themselves manage assets worth nearly Rs 2 lakh crore. These funds are present in most investor folios, as evident by their massive size. But are investors getting a good deal when they side with a Goliath? Lump sum in only four out 10 biggest equity MFs beat their respective benchmark in 1-year, 3-year and 5-year periods. Surprisingly, two giant equity funds failed to generate any alpha in 1-year, 3-year and 5-year phases, in what could disappoint investors who thronged to them. Here is what RupeeIQ found out from its latest study.

Most consistent

Kotak Standard Multicap, HDFC Mid-Cap Opportunities, Axis Long Term Equity, and Mirae Asset Large Cap emerged as the biggest equity funds that are most consistent in terms of lump-sum investments made in last 1-year, 3-year and 5-year time periods. AMFI data (as on September 12, 2019) shows that these four funds out of the top 10 have managed to eke out better returns compared to their respective fund benchmarks.

For instance, Kotak Standard Multicap has lost 1.27% in 1-year period versus a 4.74% decline in its benchmark i.e. NIFTY 200 Total Return Index. In the 3-year period, the country’s biggest actively-managed fund has given 8.81% gain versus 8.44% of the benchmark. In 5-year period, the Kotak MF fund, managed by Harsha Upadhyaya, has generated 10.97% gain versus 7.81% of the benchmark. Do note that Kotak Standard Multicap has not only beaten its benchmark in all these time periods, it has also done better than the category average in these time periods — this means it has beaten many of its peers too.

Despite a harrowing time, HDFC Mid-Cap Opportunities has managed to protect investor wealth in 1-year and 3-year time periods. In the last 12 month period, the fund has lost 11.53% versus its benchmark NIFTY Midcap 100 Total Return Index’s 15.76% decline. In the 3-year period, the biggest midcap fund has delivered outperformance of 100 basis points by giving 3.77% versus a benchmark return of 2.77%. The alpha generation story continues in 5-year-old lump sum investments too, with the HDFC Mid-Cap Opportunities Fund giving 8.77% returns vis a vis benchmark gain of 7.08%. Compared to the category average, this fund has done well only in 5-year period.

The two other most consistent large funds are Axis Long Term Equity and Mirae Asset Large Cap. As the only ELSS fund among the big boys, Axis Long Term Equity – managed by Jinesh Gopani – has delivered more than 200 basis points outperformance in all the three time periods i.e. 1-year, 3-year and 5-year periods. Needless to say that this tax-saving fund remains among the top funds in its category for all these time periods.

Mirae Asset Large Cap, managed by Neelesh Surana since inception (it is now also managed by Gaurav Mishra and Harshad Borawake), has given large amount of outperformance (over 260 basis points) both in 1-year and 5-year periods. In the 3-year period, the fund has given 133 basis points more than benchmark NIFTY 100 Total Return Index. Nevertheless, this Mirae flagship scheme has beaten its category average in all the three periods, indicating better performance compared to many peer funds.

HDFC Equity Fund and SBI Bluechip Fund have managed to beat their respective benchmark in two out of three time periods.

ICICI Prudential Bluechip Fund and HDFC Top 100 Fund have managed to beat their benchmark in 1 out of 3 time periods.

Two laggards

Our study shows that two large funds have not been able to generate any alpha over benchmarks in 1-year, 3-year and 5-year periods.

Aditya Birla Sun Life Frontline Equity Fund is a largecap scheme. After years of outperformance delivery, the law of averages seems to be catching up with this Mahesh Patil managed fund. The giant fund has underperformed its benchmark NIFTY 50 Total Return by 266 basis points in 1-year period when markets have been weak. The underperformance is bigger at 407 basis points in the 3-year period when the markets have been positive. Even in the 5-year period, the fund has marginally underperformed the benchmark and generated a 7.57% return versus the benchmark’s 7.61% gain.

The underperformance at ICICI Prudential Value Discovery is less surprising. This is partly because value investing oriented funds are known to take long periods of time to deliver alpha. When markets are doing well (at least they did for a better part of the last five years), value funds fail to shine. Still, ICICI Prudential Value Discovery – managed by Mrinal Singh – could have done better. In 1-year period, the underperformance vis a vis S&P BSE 500 Total Return Index is over 500 basis points, while in 3-year period underperformance is at over 400 basis points. In the 5-year period, underperformance declines to over 180 basis points. Needless to say, this fund has failed to beat category average in all the three time periods.

Equity fund name Assets Rs Cr * Lumpsum return %
1 -yr fund Beats benchmark 3 -yr fund Beats benchmark 5 -yr fund Beats benchmark
Kotak Standard Multicap 25,416 -1.27 Yes 8.81 Yes 10.97 Yes
HDFC Equity 21,993 -2.47 Yes 8.1 Yes 6.48 No
ICICI Prudential Bluechip 21,891 -4.17 No 7.9 No 8.07 Yes
SBI Bluechip 21,670 -1.43 Yes 5.87 No 8.73 Yes
HDFC Mid-Cap Opportunities 21,167 -11.53 Yes 3.77 Yes 8.77 Yes
ABSL Frontline Equity 20,154 -4.8 No 5.37 No 7.57 No
Axis Long Term Equity 19,280 -1.09 Yes 10 Yes 10.71 Yes
HDFC Top 100 17,079 -2.04 Yes 8.48 No 6.81 No
ICICI Prudential Value Discovery 15,106 -10.16 No 3.1 No 6.01 No
Mirae Asset Large Cap 14,050 -0.57 Yes 10.39 Yes 10.66 Yes
Source: https://www.amfiindia.com/research-information/other-data/mf-scheme-performance-details        * Daily AUM as on Sep 12, 2019

RupeeIQ take

A mutual fund is as good as its portfolio holdings. Performance is a factor of average holding cost. We at RupeeIQ believe that investors must measure a fund’s performance compared to its stated benchmark. Also, a look at how its respective category has performed gives a good idea of fund performance. Fund managers can argue that the market movement has been highly concentrated in the last few months. That is true. But under the same market conditions, some funds have done well while others have not. The ability to adapt is one of the hallmarks of successful funds.

Point to point returns i.e. for lump sum investments, for these giant funds, each with tens of thousands of crores in assets, show us that investing in a popular product is no guarantee of better returns. Since markets are cyclical, funds depending on their bets will go through ups and downs. That said, full marks should be given to funds that have generated alpha even in trying market conditions. Similarly, investors in funds that consistently failed to generate alpha must find out the reasons behind this trend. Active fund management is supposed to generate alpha because you are paying higher fees.

Disclaimer: Views expressed here in this article are for general information and reading purpose only. They do not constitute any guidelines or recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide/investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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