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Should You Invest In Mutual Funds With Large AUM? Know Here... - Outside View by PersonalFN

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Should You Invest In Mutual Funds With Large AUM? Know Here...
Nov 16, 2017

In June 2011, HDFC Top 200 was the first equity-oriented mutual fund scheme to garner a corpus of over Rs 10,000 crore. Little over a year later, another scheme from the same fund house, HDFC Equity Fund, featured on the list.

During the prevailing volatile market periods, mutual funds struggled to attract assets from retail investors. It took as many as three years for another fund to feature on the list. In March 2015, Reliance Equity Opportunities Fund became the third scheme to join the Rs 10,000-crore-club.

As the market began to rally and retail investor participation increased, the number of equity-oriented funds joining the Rs 10,000-crore-club improved almost every quarter.

As on September 30, 2017, there were as many as 16 schemes (including balanced funds) with a corpus in excess of Rs 10,000 crore. This number may increase as a few schemes are trailing behind by only a few hundred crores.

Equity-Oriented Schemes with Assets above Rs 10,000 Crore
Scheme Name Average Corpus (Rs Crore)
Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17
HDFC Prudence Fund 6,033 5,151 6,745 8,559 11,412 29,593
ICICI Pru Balanced Advantage Fund 169 462 3,137 8,209 13,779 20,579
HDFC Equity Fund 9,887 9,679 15,638 17,807 15,875 19,889
Aditya Birla SL Frontline Equity Fund 2,854 3,265 6,404 9,635 13,314 18,723
HDFC Mid-Cap Opportunities Fund 2,267 2,588 6,643 10,590 12,471 17,671
ICICI Pru Value Discovery Fund 1,985 2,534 6,063 10,150 14,044 17,238
ICICI Pru Balanced Fund 344 535 997 2,271 3,345 17,222
SBI BlueChip Fund 708 690 1,070 2,528 8,038 15,317
HDFC Top 200 Fund 11,591 10,294 12,800 13,190 13,024 14,942
Axis LT Equity Fund 264 640 2,055 5,949 10,024 14,286
HDFC Balanced Fund 784 1,099 2,018 4,378 6,841 14,268
ICICI Pru Focused Bluechip Equity Fund 4,025 4,397 7,109 9,377 11,667 14,208
SBI Magnum Balanced Fund 364 398 825 2,355 5,940 13,914
Kotak Select Focus Fund 361 303 889 3,198 5,668 13,074
Franklin India Prima Plus Fund 1,834 1,845 2,762 5,109 9,025 11,379
Aditya Birla SL Balanced '95 Fund 537 585 887 1,707 3,672 10,453
Reliance Equity Opportunities Fund 3,830 4,715 7,994 11,595 10,904 9,801
Data as on September 29, 2017
(Source: ACE MF, PersonalFN Research)

Many schemes more than doubled their assets over the past one year. While the growth in assets is related to the underlying market performance, with a bulk of it mainly due to inflows from retail investors.

Consider this, over the past four to five years, the total market-cap of BSE listed companies doubled from about Rs 60 lakh crore in 2012-13 to over Rs 130 lakh crore in September 2017.

During the same period, the equity AUM of mutual funds (including ELSSs) more than tripled to Rs 6.59 lakh crore in September 2017 from Rs 1.87 lakh crore in September 2012.

In comparison, assets managed by balanced funds grew nearly 8 times to Rs 1.35 lakh crore from 0.17 lakh crore over the same period.

The massive growth in assets is a clear indication of strong retail investor inflows.

Now as investors continue to pump money into mutual funds, should you keep an eye on the burgeoning assets of your mutual fund scheme?

In the past, PersonalFN has highlighted how top performing equity schemes were able to attract strong inflows. But, apart from their performance, some schemes benefited due to a strong distributor push as well. Hence, schemes of larger mutual fund houses are prominent on the list, despite the deterioration in performance over the past few years.

Investors Chasing Past Performance?
Scheme Name 3-year Compounded Returns As On
30-Sep-13 30-Sep-14 30-Sep-15 30-Sep-16 30-Sep-17
Equity Diversified Funds          
Aditya Birla SL Frontline Equity Fund 1.45 22.28 19.33 22.32 12.77
Axis LT Equity Fund 4.91 28.69 28.77 30.24 14.45
Franklin India Prima Plus Fund 0.38 21.41 22.44 26.21 13.53
HDFC Equity Fund -4.46 21.08 16.76 23.53 9.37
HDFC Mid-Cap Opportunities Fund 0.78 27.79 27.74 38.60 18.74
HDFC Top 200 Fund -3.01 19.27 14.32 20.57 9.48
ICICI Pru Focused Bluechip Equity Fund 3.19 20.57 16.72 19.54 11.71
ICICI Pru Value Discovery Fund 1.00 31.94 27.76 32.72 10.73
Kotak Select Focus Fund -0.42 22.74 22.47 27.26 16.61
Reliance Equity Opportunities Fund 0.06 25.30 20.29 23.70 8.98
SBI BlueChip Fund 0.51 23.98 21.05 25.17 13.30
BM: S&P BSE 200 -3.05 16.48 12.71 16.77 9.62
Balanced Funds          
Aditya Birla SL Balanced '95 Fund 1.56 18.34 18.57 23.37 14.10
HDFC Balanced Fund 2.66 20.44 19.66 26.18 13.48
HDFC Prudence Fund -1.52 19.70 17.03 24.81 10.85
ICICI Pru Balanced Advantage Fund 7.62 19.78 16.58 18.01 10.73
ICICI Pru Balanced Fund 6.16 22.22 19.35 23.36 13.11
SBI Magnum Balanced Fund 1.06 22.44 21.66 23.23 12.26
BM: CRISIL Balanced Fund 1.74 13.92 10.72 13.34 8.58
Data as on September 29, 2017
(Source: ACE MF, PersonalFN Research)

The common perception among industry experts and some investors is that performance suffers, as the fund size increases, due to liquidity constraints. To deal with liquidity issues, fund managers diversify their assets over a number of stocks or shift towards highly-liquid mega-caps and large-caps.

And even if we dig up some data from the recent past, there is little evidence to substantiate the claim that the fund's performance will deteriorate due to growth in the fund's corpus. Though larger schemes have suffered bouts of underperformance in the short-term, over the longer term, the performance has recovered.

PersonalFN is of the view that the size of mutual fund schemes doesn't reveal anything about its future performance. The key to a fund's performance lies in its investment style, which is also a factor of the fund manager's experience and investment processes followed by the fund house.

It is best to assess whether the AUM growth is causing changes to the investment style. Some changes may be in the interest of the investors and some may not. Act before any changes materialise into a disappointing performance.

Many investors pick schemes solely based on past performance. However, achieving historic super-normal returns may be difficult to achieve with an altered investment style. So, you need to take a deeper look. Stick to your fund if you are comfortable with the new investment mandate and ready to tone down on your return expectations, or else move out.

At PersonalFN, we follow stringent research processes that focus on both quantitative and qualitative parameters to offer you a selection of solid schemes with the potential to generate 'market beating' returns.

By subscribing to FundSelect Plus you can benefit from the SEVEN time-tested, readymade equity and debt mutual fund portfolios. Based on your risk profile and investment horizon, you can choose out of four equity portfolios and three debt portfolios. In addition, you get a readymade tax-saving portfolio as well.

Remember, it is your hard-earned money invested in mutual funds with to create wealth. Choose wisely.

Happy Investing!

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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