Don't fret about large-cap performance too much

Most funds have taken a hit due to a bad year. Investors should be selective and look at performance over a decade

Financial planners always say large-cap mutual fund schemes should form the core of a portfolio. But, they would be choosier after the performance of these schemes in 2015.

While the category average returns of this segment is -3.74 per cent, the performance of individual schemes has been diverse. There are a small clutch of schemes that have given positive returns. Around 50 schemes are in the red, with some schemes eroding investments by 8-15 per cent – not a very usual thing because large-cap schemes mostly invest in good stocks where the returns might not be brilliant but stable. The Nifty 50 is down 5.49 per cent in the past year.

Market experts say this change in fortunes has happened because some of the key sectors, even defensives, took a big hit this year. For example, the pharma sector has been under pressure for the past three to six months. “Even if a fund has exposure to a blue-chip like Sun Pharma, his portfolio would have taken a hit,” says a CEO of a fund house who did not wish to be named. The Sun Pharma stock is down from Rs 1,177 a share on April 6 to Rs 792.75 apiece on December 23. Similarly, fund managers who bet on the public sector banks would have taken a hit.

According to financial advisors, one year is too short a time to judge the performance of a mutual fund scheme, especially when the year has been bad for the overall market. “For most fund managers, it was a tough year. They would have struggled to beat even their benchmarks because of the overall bad conditions,” says Hemant Rustagi, chief executive, WiseInvest Advisors.

He suggests investors should not be too worried about a few percentage point difference between the category average return or benchmark index performance vis-a-vis their scheme.

What one should look for is the overall performance of the scheme over a longer period. Ideally, one should gauge the performance of a scheme over a period of five to 10 years. The scheme should have seen at least one bear and bull cycle. This would give an investor some idea about the fund manager’s portfolio and expertise.

There is good news for investors here. Some of the leading schemes which underperformed this year have given lower returns than even the category average returns that have given good returns over a longer period of time.

That is, HDFC Top 200 that has given returns of -7.14 per cent this year – even lower than the category average returns – has returned 20.96 per cent annual returns since its launch in September 1996. Similarly, UTI Opportunities Fund, which has not done so well this year, has given annualised returns of 15.39 per cent for a decade.

Of course, it’s not that one which have done better this year have not done well over the years such as Kotak 50 Regular Plan or Franklin India Bluechip Fund. But, the overall idea is to invest in good funds and stay invested in them for a good time. Hiccups like 2015 will happen.