AUM of Equity Large Cap Funds See a significant growth
Equity Large Cap Funds that have major portion of its exposure in
fundamentally strong scripts have sailed through the ups and downs in
the Indian equity market during the last two years. The Assets under
Management (AUM) of this category has seen a significant growth, up over
100% from Rs 25914.75 crore in March 2009 to Rs 55466.38 crore in March
2011. The return from this category of schemes, have been in the range
of 1.66% to 29.03% return over two year time period upto 25 May 2011.
Though the markets have gained in the long term, in the last few
months' market have got beating. Indian equities have skid down since
the beginning of the new calendar year 2011 due to various factors as
global cues, political crisis, high crude prices & inflation and
Reserve Bank of India had increased the interest rates to curtail
inflation. Sensex has been in the range of 17463.04 points to 20561.05
points (data from 1 January 2011 to 25 May 2011).
Risk-Return Analysis for Large Cap Equity Funds
Equity Large Cap Funds had delivered an average two year return of
15.53% as on 25 May 2011. We have tried to explain with the help of a
diagram, which is divided into four quadrants, with each quadrant
containing schemes of a particular risk-return profile. The size of the
bubble indicates the size of the fund. (Returns are compounded
annualized and open ended growth schemes alone are considered).
Funds Positioned in Low Risk High Return quadrant:
During the two year period ended 25 May 2011, equity large cap funds
covered in the Low Risk High Return quadrant had returns in the range of
16.51% to 29.03%. There were sixteen schemes which appeared in this
quadrant.
The schemes in the low-risk high returns quadrant outperform
the peer group on the risk-adjusted returns basis as they deliver higher
returns compared to the peers without exposing the portfolio to very
high risk. Quantum Long-Term Equity Fund had taken a low risk of 0.94%
and had delivered a two year return of 29.03%. The other schemes which
had been in the same quadrant include, HDFC Equity Fund with a low risk
of 1.13% had delivered a high return of 26.97%. HDFC Core &
Satellite Fund had taken a low risk of 1.07% and delivered a high return
of 26.01%. HDFC Top 200 Fund with a low risk of 1.12% delivered high
return of 22.20%. DSP BR Equity Fund with a low risk of 1.06% delivered
high return of 21.12%. Principal Large Cap Fund with a low risk of 1.06%
delivered high return of 20.90%.
Funds Positioned in High Risk High Return quadrant: The schemes in the high-risk high returns quadrant follow a very aggressive approach and deliver high compounded annualized growth return (CAGR). The equity large cap funds covered in the High Risk High Return quadrant had posted returns in the range of 16.15% to 20.01%. Templeton India Growth Fund had taken a high risk of 1.18% and had delivered a two year return of 20.01%.
The other schemes which had been in the same quadrant include Sundaram India Leadership with a high risk of 1.32% had delivered a high return of 18.19%. Birla Sun Life Top 100 Fund had taken a high risk of 1.18% and delivered a high return of 17.96%. Tata Pure Equity Fund with a high risk of 1.17% delivered high return of 17.30%. Sundaram Growth Fund with a high risk of 1.31% delivered high return of 16.41%. Reliance Vision Fund with a high risk of 1.19% delivered high return of 16.15%.
Fund Analysis
We have analyzed the top four equity large cap funds based on the
sharpe ratio. Sharpe Ratio reflects the risk adjusted returns, that is,
the returns per unit of risk. A high ratio is always better than a low
ratio.
Quantum Long-Term Equity Fund though being one of the small fund in
the equity large cap fund category with a corpus of Rs 76.68 crore as at
the end of April 2011, it has managed to deliver a high risk adjusted
over the two year time period. Moreover this scheme has topped this
category in terms of return over two year time period. The latest
portfolio of this scheme indicates that it has high exposure towards
sectors such as Banks (14.10%), Software (8.96%), Finance (7.76%) and
Automobile (7.03%) among the others. This scheme has outperformed its
benchmark index, TRI Sensex by 2.37%, 14.54% and 11.09% over 1 year, 2
year and 3 year time period respectively.
HDFC Core & Satellite Fund has outperformed its benchmark index,
BSE 200 by 4.65%, 11.90% and 10.58% over 1 year, 2 year and 3 year time
period respectively. The schemes latest portfolio indicates that its has
high exposure towards sectors such as Software (15.92%), Banks (9.47%),
Pharmaceuticals (7.66%) and Capital Goods – Electrical Equipment
(7.55%) among others.
HDFC Equity Fund and HDFC Top 200 Fund from the HDFC Mutual Fund
family have continued to be top performers for investors over long time.
The size of these funds is huge and the fund manager has compensated
the investors with good returns for investing into these funds over long
run. Both these funds have outperformed their respective benchmark by
huge margin over 1 year, 2 year and 3 year time period.
DSP BR Equity Fund has high exposure towards sectors such as Banks
(12.32%), Finance (7.64%), Software (7.28%) and Crude Oil & Natural
Gas (6.11%) among others. It has outperformed its benchmark index,
S&P CNX 500 by 3.33%, 8.46% and 7.67% over 1 year, 2 year and 3 year
time period respectively.
Conclusion
The equity diversified funds with high large cap tilt are expected to
do well due to its advantage of investing in fundamentally sound
scripts. Equity Large Cap Funds offer better protection to investors in
the downturn. These schemes are suitable for investors who are not
aggressive but would like to benefit from the equity markets over long
run.
Moreover these funds would get assistance from India's economic
growth. India's domestic economy continues to remain on a strong footing
with long term growth prospects visible. The same is expected to drive
the equity market over a longer period of time.
Higher crude oil prices, higher inflation and higher interest rates
kept the equity market sentiments lower in recent times. Equity Large
Cap Fund investors should make of the dip in the market as an
opportunity to invest for long term.