Equity MF Rs 10k-cr club swells to ten schemes

During the peak of 2007 bull run, only four schemes had assets of over Rs 5,000 cr

The sustained money flowing into the mutual fund (MF) sector in the past two years by way of systematic investment plans (SIPs) has propelled the assets of several equity schemes into the Rs 10,000-crore club.

While just three schemes were part of this club two years ago, as many as 10 schemes today manage assets of over Rs 10,000 crore. To put this in better perspective, even at the peak of the bull run in late 2007 there were four schemes with assets of over Rs 5,000 crore, with the largest equity scheme handling just about Rs 6,400 crore.

"Investors are choosing the MF route to enter the markets, and most of this money has flown into the large-sized schemes, which are perceived as safe bets by investors," said Manoj Nagpal, CEO, Outlook Asia Capital. Over the past 30 months, the SIP trend has surged and there are now over 10 million of these accounts. The average investment size of an SIP is about Rs 3,500.

Some of the schemes have grown so large there is talk among market participants that a few such as ICICI Prudential Value Discovery Fund might even temporarily stop accepting fresh investments. HDFC Mid-Cap Opportunities Fund is another fund which, sources say, have stopped aggressively marketing the fund to investors.

ICICI Prudential AMC denied the fund had any such plans. HDFC MF, for its part, maintained that there are no large funds in India, and even HDFC Equity, the largest fund in India, formed just about 0.2 per cent of the market capitalisation of Indian equities.

Indeed, experts feel that MF equity assets constitute a mere 4-5 per cent of the total market cap in India, so managing large schemes is not a problem if inflows are regular and especially if the fund sticks to a buy-and-hold strategy. "These funds may find it more difficult to enter and exit positions quickly during times of sustained redemption pressure," said Nagpal.

Some believe that funds with large assets may lose out on returns over a long period. Recently DSP BlackRock Micro Cap Fund, a Rs 5,000 crore small cap fund, announced that it would stop taking fresh money as large inflows could impact future returns.

"While we continue to find interesting investment opportunities for the fund to invest in, its current size poses the bigger challenge of liquidity. It is challenging to incrementally build positions, and increase stock weightage of companies to a meaningful size in the portfolio," said Vinit Sambre, senior VP and fund manager, DSP BlackRock.

To be sure, performance does not seem to be an issue with the schemes in the Rs 10,000-crore category at the moment, with most of them beating their benchmarks as well as the category returns in the three- and five-year periods. "Performance may become a challenge but only for large-sized mid- and smallcap funds as the universe for selecting stocks is limited," said Vidya Bala, head of MF research at Fundsindia.com. According to estimates, the ownership of MFs in mid and small cap stocks has more than doubled to about 25 per cent from about 10 per cent in the last three years.

Experts maintain that investment decisions should be based on a scheme's track record across market cycles, the fund house's investment philosophy and pedigree of its fund managers, rather than scheme size.