Top MF equity schemes struggle to beat benchmarks

Amid high inflow and market rally, fund managers find it challenging to deploy cash

Pressure to perform amid a sharp rally in the market and high monthly inflow is increasingly becoming evident on mutual fund (MF) schemes' returns.

A majority of the most popular equity schemes have failed to beat their respective benchmarks. The performance of most of these, relative to their benchmarks, isn’t encouraging on a year-to-date, one-year or three-year time period.

HDFC Equity, Aditya Birla Frontline Equity, HDFC Mid-Cap Opportunities, ICICI Prudential Value Discovery, SBI Bluechip, HDFC Top 200 and Franklin India Prima Plus are some of the most popular schemes offered by domestic MFs. They have assets under management between Rs 11,200 crore and Rs 19,600 crore, are established and with a long-term record.

With the exception of Axis Long Term Equity, Kotak Select Focus and ICICI Prudential Focused Bluechip, most other top-tier schemes have failed to match or better the returns of their benchmarks.

Dhirendra Kumar, chief executive of fund tracking firm Value Research, says: “Fund managers who have been waiting for corrections and or had tried to time the market are feeling the pain. Further, schemes that have gained in size are finding it challenging in managing the assets, which could be resulting in under-performance. However, this is a market cycle and schemes have to undergo such phases. Investors must not take an investment decision in schemes by looking at the recent few years' out-performance or under-performance.”

Most fund managers at these schemes said a one-to three-year period is too short to judge the performance of an equity scheme. “It’s a fact that schemes are under-performing the benchmarks. But, this also has to be looked at in the perspective of the schemes’ mandate. The fact is continuously disappointing earnings have made all of us cautious, very cautious, at this stage. We can't afford to go reckless and are taking every investment call carefully,” said an equity head of a large fund house.

Fund managers have been cautioning investors and distributors about high return expectations vis-à-vis the benchmarks. “I anticipate a correction of not less than 10 per cent. But, we can't sit with cash for long; it needs to be deployed at least partially, if not fully. You would notice that existing stocks in the portfolios are being chased the most. As during uncertain times, we as fund managers would like to add stocks which bring us a certain degree of comfort, irrespective of valuations,” said a chief investment officer who discourages investors to put any extra money in equities in the current market.

Over the past few months, the most-bought stocks by fund managers are HDFC Bank, Infosys, ICICI Bank, ITC, Sun Pharma, GAIL, Tata Motors, Eicher Motors, Mahindra & Mahindra and State Bank of India.

A little over 400 equity- related MF schemes manage assets of about Rs 7 lakh crore. Inflow into the equity segment through systematic investment plans (SIPs) has grown to a record high of a little over Rs 5,500 crore a month. The sector currently has 16.5 million SIP accounts.