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Big funds score on safety

Smaller funds are more nimble, allowing them to exit and enter stocks quickly

Neha Pandey Deoras  |  Mumbai 

HDFC Top 200 has been on most distributors’ recommended fund list. However, Renu Pothen, head of research at, removed the fund from her list last month. Other funds removed were HDFC Equity Fund, Principal Global Opportunities Fund, DSP BlackRock India TIGER Fund and ICICI Prudential FMCG Fund.

Pothen argues, “These funds are very large. For instance, both the HDFC funds have assets under management (AUM) of around Rs 10,000 crore. And we feel that their ability to give as good returns as compared to smaller funds is limited, as such funds with bigger AUMs are giving lower returns.”

When returns of the top 10 mutual fund schemes (according to AUM) are compared with 10 schemes, having AUM between Rs 500 crore and Rs 1,000 crore, it’s seen that funds with smaller AUM don’t fare as well as the top 10 schemes do. In the past year, bigger funds have lost 33 per cent, whereas smaller ones have shed 41 per cent. Similarly, in three, five and 10 years, bigger ones gained 249, 98 and 141.5 per cent, while smaller ones gained 205.5, 57.5 and 145 per cent, respectively.

However, the results are mixed when individual funds are compared. According to data from mutual fund rating agency Value Research, HDFC Top 200 (AUM Rs 11,381 crore) has lost nearly five per cent in the past year. In comparison, Reliance Top 200 Retail (AUM Rs 829.65 crore) has lost nearly four per cent in the same period. Similarly, Fidelity Equity (AUM Rs 3,401 crore) has lost nearly five per cent in the past year, but Birla Sun Life Equity (AUM Rs 750 crore) lost nine per cent.

Lalit Nambiar, senior vice-president and fund manager, head (research), UTI AMC, says, “Smaller funds are nimble and, hence, it’s easy to invest money in these to earn good returns. With larger funds, there is capacity constraint, and you will have to buy the same stocks again and again. As a result, getting consistent returns becomes a problem.” However, Nambiar says data does not show this trend clearly.

Pothen suggests new investors take to smaller funds, while existing ones can stay put in bigger funds. Ideally, one should look at a fund’s returns and its track record. Older the fund, the safer it is.

Sanjay Sachdev, president and chief executive officer of Tata Asset Management, takes the middle path. “There is no thumb rule that larger AUMs are a demerit. But larger funds do become difficult to manage after a point, especially in times of stress,” he says. Indian markets have lesser depth compared to their foreign counterparts. Therefore, liquidity can become an issue. “Moreover, opportunities to invest Rs 8,000-10,000 crore over a period of time may just diminish. In stressful times, you cannot take out such huge amounts in two-three days if there is huge redemption and you’ll be in a soup,” Sachdev explains.

(Average AUM over Rs1,000 crore) AUM (Rs cr)

Returns (%)

1-year 3-year 10-year
HDFC Top 200 11,381.06 -4.95 24.61 28.28
HDFC Equity 9,916.37 -6.61 28.10 27.95
Reliance Growth 5,843.49 -5.38 22.93 32.56
Magnum Taxgain 4,778.54 -2.08 19.19 27.88
Franklin India Bluechip 4,516.35 -3.02 22.88 24.96
ICICI Prudential Dynamic 4,118.77 -3.42 23.78 -
ICICI Prudential Focused Bluechip Equity Retail 3,805.27 -3.39 24.95 -
UTI Dividend Yield 3,599.89 -3.93 24.00 -
Fidelity Equity 3,401.12 -4.97 23.90 -
Reliance Equity Opportunities 3,340.12 4.61 35.04 -
Magnum Global 915.38 5.60 34.09 27.94
HDFC LT Advantage 840.52 -3.16 26.03 26.78
UTI Master Plus '91 829.97 -4.62 17.47 19.21
Reliance Top 200 Retail 829.65 -3.99 17.86


Kotak 50 828.44 -5.98 16.99 23.56
Franklin India Taxshield 812.36 0.61 25.01 23.62
Kotak Opportunities 805.45 -5.11 20.93 -
Sundaram Energy Opportunities 803.23 -8.95 11.84 -
Birla Sun Life Equity 749.95 -9.18 18.95 23.93
Returns as on April 18;    AUM as on March 31; AUM: Assets under management                              Source: Value Research

Some feel this phenomenon is largely restricted to mid- and small-cap funds. “In the mid-cap space, there are not many stocks that can help you produce good returns year after year. Therefore, if the fund size increases, there are chances it becomes illiquid. And, it is important for these funds to maintain an optimum size,” says Dhruva Raj Chatterji, senior research analyst at Morningstar India. A larger mid-cap fund can’t invest only in select mid-cap stocks due to concentration risk in those stocks. This defeats the investment mandate and impacts the performance.

Also, in case of thematic funds, their size can be a spoilsport. Fund managers may not be able to take many autonomous bets in this case, as there is a fixed number of stocks to play with.

First Published: Wed, May 02 2012. 00:50 IST