PICKING THE WINNERS
We bring you mutual funds that have given the highest returns consistently, and how to gain from them.
The past two-three years have seen a significant shift in investing patterns of many Indian investors, who till recently had strong preference for physical assets such as gold and real estate. The increase in household income and poor performance of traditional avenues such as fixed deposits, real estate and gold nudged many investors towards market-linked products such as equities. The real estate sector is going through unprecedented stagnation and has witnessed price correction across a few markets. Gold prices have largely remained range bound in recent years. The rate of interest on fixed deposits declined to almost a decade low in 2017. Even after some nominal increase in 2018, rates are still low, around 7.5 per cent, and post-tax returns even lower. Therefore, many investors were forced to scout for other options.
With equity markets doing relatively better, many people have started investing or putting in more money into equities. The number of active demat accounts has trebled to around 34 million in November 2018 since 2007.
Many investors are routing their investments in equities through mutual funds. The share of mutual funds among the total financial savings has gone up from 10 per cent in March 2016 to 14 per cent in March 2018, according to a report by rating agency Crisil. Mutual funds have seen unprecedented inflows over the past three years. Equity mutual funds have received ` 2.66 lakh crore as net monthly inflows for the past three years
ending October 2018.
The average assets under management (AAUM) of mutual funds has trebled from around ` 8 lakh crore in the September-ended quarter of 2013 to around ` 24 lakh crore for the same quarter of 2018.
Equity markets have have rewarded investors well over the past few years. The average three-year return across categories is around 11 per cent in equity mutual funds, while over the five-year period it is around 18 per cent. The best performer has been the category of small-cap funds, which has delivered an annualised return of 23 per cent over a five-year period. Mid-cap funds returned 22 per cent while large-cap funds delivered a return of 13 per cent on an average over a five-year period. The top performing fund in the small-cap category, Reliance Small Cap, has given a return of 31 per cent over the past five years, while SBI Small Cap is not far behind with a return of 30 per cent.
In the mid-cap space, L&T Midcap tops the returns chart with an annualised return of 25.45 per cent. Kotak Emerging Equity is the next best in the category with a return of 24 per cent.
Reliance large-cap is the top performer among large-cap funds with a return of 18 per cent while SBI Bluechip is at second position with 15 per cent return over three
The past three months of volatility in equity markets have, however, left investors jittery. S&P BSE Sensex, the broad equity market indicator, slipped around 14 per cent (around 5,500 points) from its all time high of 38,896 in August 2018, to touch a low of 33,349 in October. It is currently hovering around the 35,000 level. The index has lost around 5-6 per cent each in September and October. The correction is even
more significant among the midand small-cap indices. S&P BSE Midcap has lost around 16 per cent while S&P BSE Smallcap has lost around 25 per cent (this year till mid-November).
Most equity mutual funds have given negative returns over a three-month period. The category of large-cap funds is down around 7 per cent while the worst affected are small-cap funds with an average loss of around 10 per cent.
The past two-three months have been testing for investors, but they have shown resilience. “It has been a difficult time for many investors who haven’t experienced this before,” says Satyen Kothari, Founder and CEO, Cube Wealth. Despite the recent market correction, investors have continued with their SIP investments. In fact SIP inflow has touched an all time high of ` 7,985 crore in October, which is more than double of
` 3,122 crore in April 2016.
“The industry showed resilience despite the recent market events and the ensuing volatility in both debt and equity segments. Over the last year, there has been 30 per cent growth in retail folios, 14 per cent growth in retail AUM and over 40 per cent growth in monthly SIP contributions. This shows that retail investors continue to repose their faith in mutual funds,” says N.S. Venkatesh, Chief Executive Officer, Association of Mutual funds of India (AMFI).
The total number of accounts (or ‘folios’ in mutual fund parlance) as on October 31, 2018 stood at 79 million, while the number of folios under equity, ELSS and balanced schemes, wherein the maximum investment is from retail segment, stood at 66.5 million. This is the 53rd consecutive month witnessing a rise in the number of folios.
“Many first-time investors who got attracted after witnessing the returns in 2017 have not been spooked by the recent volatil-
ity,” says Vijay Kuppa, Co-Founder, Orowealth.
This shows that investors have matured over time and understand that volatility is indispensable in equity investing.
“We believe that Indian investors have matured in their approach towards investments over the years. This is largely due to the collaborative work towards investor awareness done by the media, distributors, AMCs and AMFI through its campaign – Mutual Funds, Sahi Hai. Over the past few months, when the markets have been volatile or have corrected, we have received steady inflows,” says Nimesh Shah, Managing Director and CEO, ICICI Prudential AMC.
Investors understand that such market corrections are not uncommon in equity markets. Since April 1979 (the time since data is available), the S&P BSE Sensex has delivered negative returns only in 43 per cent of the months. On 18 per cent occasions, the fall is more than 5 per cent.
Equities have rewarded those who haven’t lost their calm during market volatility and stayed invested for the long term. “Equity as an asset class has the potential to generate high returns; however, it would come with volatility, especially in the short term. Investors have to accept and embrace this fact in order to create wealth through equities over a longer period,” says Sundeep Sikka, Executive Director and CEO, Reliance Mutual Fund.
A back of the envelope calculation shows that if you had invested in an SIP for 10 years on the 10th of any month, you would have lost money only on three occasions, and on 51 per cent of the occasions, the returns would have been more than 20 per cent.
“Investors should continue SIPs during market downturns, as it provides the benefit of rupee cost averaging, and they get rewarded in the long term,” says Vinay Paharia, CIO of Union AMC.
If you have a lumpsum, the best way to invest is to first invest in a liquid fund and then transfer to an equity fund (or more than one) over time. However, even if you would have put lumpsum money and stayed invested for long term, the chances of you losing money were very less, shows past data.
Investors shouldn’t get hassled by such market corrections and continue investing. “Markets do not necessarily behave in a linear manner as they are influenced by a host of other factors, both economic and behavioural (greed and fear). We would advise investors to focus on their asset allocation (debt and equity) and consider the volatility of equity markets as a part of wealth creation journey. Accordingly, we advise investors to evaluate equities as
“Indian investors have matured in their approach towards investments... largely due to the collaborative work towards investor awareness done by media, distributors, AMCs and AMFI... Over the past few months, when the markets have been volatile or have corrected, we have received steady inflows” Nimesh Shah, MD and CEO, ICICI Prudential AMC