Largecap funds take the lead over smallcap peers in 2-year SIP returns

However, immediate shift in investor preference unlikely, say experts

Largecap funds, which have been struggling to garner inflows for the past two-three years due to comparatively lower returns, are making a comeback on the returns chart. Buoyed up by the outperformance in the past six months, largecap funds are now ahead of their smallcap peers in the two-year systematic investment plan (SIP) returns chart.

 

On average, SIP investments in largecap funds have generated 11.3 per cent annualised return in the two-year period. In comparison, average smallcap fund return stands at 7.2 per cent (annualised). However, midcap funds remain ahead of largecap peers with 12.6 per cent annualised return in the same period.

 

The comparatively better performance of largecap funds is a result of their recent outperformance. While Nifty 100 total return index (TRI) is up 7.2 per cent in the one-year period, Nifty Smallcap 250 TRI is down 2.4 per cent.

 

Largecap funds have been out of favour with investors for some years now as money has largely flowed into the top-performing categories of smallcap and midcap funds. In the financial year 2024-25 (FY25), smallcap funds garnered nearly ₹42,000 crore compared to ₹23,500 crore inflows into largecap funds.

 

According to experts, while largecaps have done well in the near term, there may not be an immediate shift in investor preference.

 

"While a section of do-it-yourself (DIY) investors may shift towards largecap funds, it is unlikely to happen on the regular side. Distributors have been advising people to stick to their SIPs in midcap and smallcap funds for at least five years. They along with fund houses have worked on spreading awareness on the benefits of continuing their SIPs for longer," said market expert Sunil Subramaniam. 

 

The inflows into MF schemes largely depend on the three-year and five-year returns, especially the trailing returns which are displayed on every investment application and website. Largecap funds still have a catching up to do on the longer tenures.

 

SIP investments in largecap funds have generated 15 per cent annualised return on average in the three-year period. In comparison, average smallcap fund return stands at 16 per cent, shows data from Advisorkhoj.

 

However, all the smallcap funds have delivered negative returns in the one-year timeframe. In comparison, 21 of the 31 largecap funds are back in the green after the recent recovery in the equity market.

 

"Ideally, SIPs should continue for at least five years before drawing any conclusive inference. Investors with a longer investment timeframe shouldn’t worry. Recently, we witnessed a prolonged downturn— five consecutive months of decline on the Nifty for the first time in over 20 years. Generally, largecaps recover first, followed by midcaps and smallcaps (sic)," said Abhishek Dev, co-founder and chief executive officer (CEO), Epsilon Money.

 

According to experts, while the comparatively lower returns in the past few years has been one of the key reasons behind lower flows into largecap funds, the growing awareness around passive funds is also a factor.