Equity schemes with billion dollar asset size on the rise in India

Number of schemes in the club rises to 9 on market rally, robust inflows

There’s been a jump over the past year in the number of equity schemes with an asset size of $1 billion (Rs 6,300 crore).

With the 30 per cent stock market rally in 2014, coupled with strong inflow in the equity segment from retail investors, the number has increased from two to nine schemes. There are now six mutual fund (MF) houses with at least one equity scheme having a corpus of over $1 bn.

Last year, HDFC MF was the only house in this club. The country's largest fund house had two of its schemes here, HDFC Equity and HDFC Top 200, both managed by Prashant Jain. Currently, ICICI Prudential AMC, Franklin Templeton, Reliance MF, Birla Sun Life MF and IDFC AMC also have at least one equity scheme with assets under management (AUM) of over $1 billion to brag about.

Beside the two schemes managed by HDFC MF, others in this club include Reliance Equity Opportunities Fund, HDFC Mid-Cap Opportunities Fund, ICICI Prudential Value Discovery Fund, Birla Sun Life Frontline Equity Fund, IDFC Premier Equity Fund and Franklin India Bluechip Fund.

Put together, overall assets managed by these nine e equity schemes are nearly Rs 1 lakh crore. This is a little over a fourth of the MF sector's total of equity AUM.

Since the beginning of the previous financial year (2014-15), net inflows in equity-oriented schemes have been Rs 90,000 crore, a record.

 

Dhirendra Kumar, chief executive of Value Research, an entity tracking the sector, says: “It is partly because of the market appreciation over the past year and the continuous money inflows from investors.”

However, he adds, as several schemes have gained size in a short period, one needs to be cautious. “Investors should be watchful of the performance. As a scheme gains size, there tends to be question marks on its performance. Investors should not take a scheme's past performance as a guide and expect this to be replicated,” he warns.

There has been a debate on whether the burgeoning size of schemes is a constraint for performance. Many believe that in smaller funds, the manager has more flexibility to manoeuvre when it comes to quick stock selection. Large funds lack such flexibility, they add.

However, those managing such schemes don’t agree. Prashant Jain, chief investment officer of HDFC MF, has always maintained that the size of a fund isn't a constraint on performance.

“The percentage of AUMs outperforming their benchmarks is significantly higher than the percentage of schemes doing so. This implies that larger schemes have done better compared to smaller ones,” he says.

All equity schemes in India are tiny in relation to market capitalisation, he says. For instance, one of his schemes, HDFC Equity Fund, with assets worth Rs 18,000 crore, is only 0.17 per cent of market capitalisation. “HDFC Equity is large compared to other schemes but it is small relative to the market. Size, thus, is not a constraint. Besides, larger schemes are more likely to be managed by more experienced fund managers,” adds Jain.

Overall, the equity AUM of the MF sector is around Rs 4 lakh crore. Compared with the total market capitalisation of Rs 102 lakh crore, equity fund managers control less than four per cent of the market size. Managers say as long as MFs are not a dominant force in the market, active fund management will continue to be a powerful tool to enable higher returns.