/Happy with 6-month returns from large cap mutual funds? Don’t overlook these facts

Happy with 6-month returns from large cap mutual funds? Don’t overlook these facts

Many large cap mutual fund investors are overjoyed. You still will miss the story if you do look only at the one-year return and above. Large cap schemes are still returning single-digit returns in the last one year. However, these investors are extremely happy after finding out that their favourite schemes have given 30% returns over the last six months.

For example, Axis Bluechip Fund has given around 31 % returns in the last six months. Mirae Asset Large Cap Fund, another crowd favourite, has returned around 35% in the same period. SBI Bluechip Fund, another favourite, has offered around 31% in six months.

Have these schemes turned around the corner? Are happy days here again for actively-managed large cap schemes?

As you would know, the key indices are soaring high, albeit nervously, these days. From its low of around 25,981 on March 23, S&P BSE Sensex has risen to 44,500. It’s a gain of around 70%. So, it is only natural that your large cap schemes do well in the same period. However, these schemes continue to face challenges.

For example, they continue to lag their passively-managed counterparts even in this period. For example, the first 12 positions in the return chart is occupied by index funds. Kotak Bluechip Fund is the first active fund at the return chart at 13th place with around 35% returns. Index funds continue to occupy the top slots even after this. Most large cap schemes come only in the second half – well almost.

Simply put, the actively-managed large cap schemes lagged passively-managed schemes even in 2020. That means, index funds have been beating actively-managed large cap schemes convincingly in the last three colander years. Blame it on the narrow rally or only a handful heavyweight taking the key indices to higher levels, large cap schemes have a performance issue.

The trouble is that three-year track record would enough for many advisors to start recommending passive funds with more conviction. Even investors would be more open to idea of betting on plain vanilla index schemes with lower cost than paying a higher fee to a fund manager who fail year after year. If you have been wondering about active vs passive for a while, you may also take a final call about it in the New Year.

Another major problem is taking comfort in the higher double-digit returns given by your large cap schemes and overlooking their persistent poor show in the last few years. If your scheme has been underperforming its benchmark and category average for a year or two, you may take call on getting out of the scheme. Or stop your investments in them. Similarly, you may also consider betting on index funds. Don’t let the short-term performance lull you into complacency.

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