As the S&P BSE Sensex and Nifty 50 continue to move higher, Assets Under Management (AUM) of equity mutual funds, too, is touching new milestones. As on April 30, 2017, the AUM of equity mutual funds crossed Rs 5 lakh crore up by over 40% from Rs 3.50 lakh crore a year ago.
Over the past year, a whopping Rs 75,200 crore flowed in to equity mutual funds (including equity linked savings schemes). Mutual funds in turn bought Rs 66,555 crore worth of stocks. Comparatively, Foreign Institutional Investors (FIIs) put in just Rs 47,832 crore into Indian stocks. Unwittingly, the strong inflow from retail investors is leading on this bull market rally.
Into which mutual fund schemes is this money flowing? Investors tend to chase short-term returns. Hence, schemes that delivered a strong performance in the recent past have been the beneficiaries of this asset inflow.
Top 15 Equity Mutual Funds With The Highest Inflow
| Scheme Name |
1 Year Return (%) |
April 2016 Corpus (Cr.) |
April 2017 Corpus (Cr.) |
Net Inflow*
(Cr.) |
AUM Growth |
| SBI BlueChip Fund |
17.00 |
5,624 |
13,339 |
6,758 |
137% |
| Kotak Select Focus Fund |
29.16 |
4,425 |
10,270 |
4,555 |
132% |
| Birla SL Frontline Equity Fund |
20.46 |
11,197 |
16,962 |
3,474 |
51% |
| ICICI Pru Value Discovery Fund |
16.23 |
11,904 |
17,306 |
3,469 |
45% |
| Axis LT Equity Fund |
15.92 |
8,245 |
12,916 |
3,358 |
57% |
| HDFC Mid-Cap Opportunities Fund |
32.07 |
10,649 |
16,685 |
2,620 |
57% |
| DSPBR Micro-Cap Fund |
33.76 |
2,544 |
5,824 |
2,421 |
129% |
| L&T India Value Fund |
35.22 |
1,125 |
3,899 |
2,377 |
246% |
| Franklin India Prima Plus Fund |
16.81 |
7,425 |
10,964 |
2,291 |
48% |
| Birla SL Equity Fund |
30.67 |
2,399 |
5,287 |
2,151 |
120% |
| Birla SL Advantage Fund |
29.11 |
1,086 |
3,406 |
2,003 |
214% |
| Franklin India Smaller Cos Fund |
28.61 |
2,799 |
5,579 |
1,980 |
99% |
| MOSt Focused Multicap 35 Fund |
31.81 |
3,560 |
6,543 |
1,850 |
84% |
| Reliance Tax Saver (ELSS) Fund |
28.08 |
4,841 |
8,045 |
1,844 |
66% |
|
39.42 |
1,464 |
3,769 |
1,727 |
157% |
| S&P BSE 200 |
20.53 |
|
|
|
|
| Nifty 50 |
17.76 |
|
|
|
|
Data as on May 29, 2016
*The corpus of the scheme is adjusted based on its 1 year performance to estimate the net inflow of assets
Source: ACE MF, PersonalFN Research
As seen in the table above, nearly half the schemes have more than doubled their corpus in the past year. Mutual fund schemes such as L&T India Value Fund and Birla Sun Life Advantage Fund tripled their assets. Apart from their performance, some schemes benefited due to a strong distributor push as well. Hence, schemes of larger mutual fund houses are more prominent in the list, even though their performance over the past year may not be up to the mark.
If we rank the 300-odd schemes as per their latest AUM, the top 30 schemes (the top decile) account for over 56% of the total equity AUM. Over the year, this ratio remained stable, indicating that the AUM is concentrated to only a few well-known schemes. As many as 11 mutual fund schemes have a corpus in excess of Rs 10,000 crore each.
Top 15 Equity Fund Schemes With The Largest AUM
| Scheme Name |
April 2017 Corpus (Cr.) |
| HDFC Equity Fund |
18,585.56 |
| ICICI Pru Value Discovery Fund |
17,305.79 |
| Birla SL Frontline Equity Fund |
16,961.75 |
| HDFC Mid-Cap Opportunities Fund |
16,684.82 |
| HDFC Top 200 Fund |
14,312.04 |
| SBI BlueChip Fund |
13,338.85 |
| ICICI Pru Focused Bluechip Equity Fund |
13,155.67 |
| Axis LT Equity Fund |
12,915.63 |
| Franklin India Prima Plus Fund |
10,963.74 |
| Kotak Select Focus Fund |
10,270.33 |
| Reliance Equity Opportunities Fund |
10,013.65 |
| Franklin India Bluechip Fund |
8,524.57 |
| Reliance Tax Saver (ELSS) Fund |
8,045.25 |
| MOSt Focused Multicap 35 Fund |
6,543.17 |
| ICICI Pru Dynamic Plan |
6,449.65 |
Data as on May 29, 2016
Source: ACE MF, PersonalFN Research
Now with mutual fund assets burgeoning in size, does it make sense to invest in schemes with a large asset base?
Let’s go back in time, say five years ago, and list the mutual fund schemes by their AUM as in March 2012. We then work out the forward returns—1-year, 3-year, and 5-year returns. If we analyse this data, it is difficult to conclude if schemes with a larger asset base are either better or worse compared to other schemes with a smaller AUM.
Top AUM Equity Funds V/s Returns
| Scheme Name |
March 2012
Corpus (Cr.) |
30/Apr/12
To
30/Apr/13 |
30/Apr/12
To
30/Apr/15 |
30/Apr/12
To
30/Apr/17 |
| HDFC Top 200 Fund |
11,530 |
11.02 |
18.86 |
15.74 |
| HDFC Equity Fund |
10,121 |
8.73 |
21.04 |
16.75 |
| Reliance Growth Fund |
5,843 |
4.19 |
21.52 |
18.24 |
| SBI Magnum TaxGain'93 |
4,697 |
11.95 |
23.62 |
17.30 |
| Franklin India Bluechip Fund |
4,625 |
12.59 |
18.31 |
14.99 |
| ICICI Pru Dynamic Plan |
4,119 |
9.24 |
21.10 |
17.34 |
| ICICI Pru Focused Bluechip Equity Fund |
3,805 |
13.94 |
21.02 |
16.80 |
| UTI Dividend Yield Fund |
3,713 |
8.33 |
15.35 |
13.00 |
| Reliance Equity Opportunities Fund |
3,340 |
13.93 |
24.98 |
17.34 |
| L&T Equity Fund |
3,315 |
8.61 |
21.80 |
16.90 |
| HDFC TaxSaver |
3,288 |
5.02 |
20.88 |
17.07 |
| DSPBR Top 100 Equity Fund |
3,274 |
8.08 |
15.73 |
13.09 |
| Birla SL Frontline Equity Fund |
2,901 |
20.05 |
24.20 |
18.97 |
| Reliance Reg Savings Fund-Equity Plan |
2,891 |
11.03 |
22.18 |
18.58 |
| UTI Opportunities Fund |
2,814 |
11.28 |
19.22 |
13.32 |
| Benchmark |
|
|
|
|
| NIFTY 50 |
|
13.00 |
15.95 |
12.14 |
| S&P BSE 200 |
|
11.80 |
17.03 |
13.83 |
| Category Median |
|
11.02 |
20.35 |
16.50 |
Data as on May 29, 2016 Returns over 1 year compounded annualised
Source: ACE MF, PersonalFN Research
As seen in the table above, the schemes with a large AUM may have suffered a bout of underperformance over the 1-year period. However, over the longer term, the performance has recovered. All schemes have delivered a decent alpha over the benchmark.
The common perception among industry experts and some investors is that performance suffers as the fund increases in size due to liquidity constraints. This resulted in the fund managers diversifying their assets over a number of stocks or making a shift towards highly liquid large-caps and larger mid-caps. However, mutual fund houses and their managers will hotly dispute this contention.
There is little evidence to substantiate the claim that fund performance will deteriorate with the growth in the fund's corpus. Hence, judging a mutual fund scheme solely based on its AUM size is rather absurd.
As far as the AUM of mutual fund houses is concerned, PersonalFN is of the view that the size of a mutual fund schemes doesn't tell you 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 as a disappointing performance.
Many investors pick schemes solely based on past performance, which may be unachievable with the change in investment style. So, you need to take a deeper look scientifically to pick the best mutual fund schemes for the portfolio. If a fund has changed its investment mandate, you may tone down on your return expectations or just move out.
PersonalFN considers various parameters to rank mutual funds schemes but doesn't consider a large AUM as a barrier for recommending schemes under normal circumstances. At PersonalFN, we follow stringent research processes that focus on both quantitative and qualitative parameters to enable you to select solid schemes that have the potential to generate 'market-beating' returns. Subscribe to our Premium Research Services here.
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