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Actively-managed large cap mutual funds poised for a comeback

Defying predictions of their imminent irrelevance, some actively-managed large cap schemes have bounced back to the top of the return chart.

, ET Online|
May 31, 2019, 11.02 AM IST
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Defying predictions of their imminent irrelevance, some actively-managed large cap mutual fund schemes have bounced back to the top of the return chart. Many mutual fund advisors were concerned about the future of actively-managed large cap mutual fund category after large cap index funds took the top positions in the return chart in the last year.

As per the latest data, HDFC Top 100 Fund, an actively-managed large cap mutual fund scheme, is topping the category with 16 per cent returns in the last one year. Reliance Large Cap Fund has taken the second position with 15.31 per cent returns in the same time period.

However, this doesn't mean that the entire actively-managed large cap mutual fund category is out of the woods. Apart from the these top two schemes, the rest of the actively-managed schemes are still behind most of the Sensex and Nifty index funds. Ranks third till 36 are held by the passive funds. The third actively managed fund Mirae Asset Large Cap Fund is at 37 th place with 11.70 per cent returns, followed by Axis Bluechip Fund (11.07 per cent) and Tata Large Cap Fund (10.41 per cent). There are a total of 85 schemes including active large cap funds, large cap index funds and large cap ETFs.

However, many mutual fund advisors believe that actively-managed large cap mutual fund category is poised to bounce back in some time. They say index funds were outperforming their active peers only because of the narrow-based rally where only some index stocks were performing well. These advisors say once the rally becomes broad-based the rest of the actively-managed large cap mutual funds too would start performing well.

“There is no surprise that the active funds are moving up in the charts again. After election results, political stability is back and we can see a broader participation in the market rally. So, the actively-managed schemes which had those stocks in their portfolio started performing better than index funds that invest only in the index scrips. This trend reversal has happened in the last 10-15 days,” says Dinesh Rohira, Founder and CEO at 5nance.com.


In the last 15 days, while BSE Sensex has risen by 6.5 per cent, most index stocks have risen only by around 3-4 per cent. Many non-index stocks have moved up by 15-20 per cent which contributed to the performance of the actively managed funds. “The trend reversal has just begun. It will become clearer as the participation becomes broader,” says Rohira.

In the beginning of May, it was a different story altogether. As said earlier, index funds have vanquished actively-managed large cap mutual funds. For details, read : Large cap index funds continue to outshine actively-managed large cap schemes.

However, mutual fund advisors do not deny the benefits of passive funds. They have in fact gradually started adding index funds to their clients' portfolio. They say in bleak periods like 2018 when nothing else was working, index funds were producing double digit returns.

“Apart from good actively-managed large cap funds, we advise investors to go for index funds as well. The best part of investing in these schemes is that you invest in the biggest businesses at very low expense ratio and rebalancing also happens without fund manager’s bias. Diversification always help,” says Tarun Birani, TBNG Capital Advisors.

Confused? Given the see-saw performance of active large cap funds and passive funds, what should you choose? Most mutual fund advisors strongly believe actively-managed funds still make more sense. They say the 20 per cent component which mutual funds can invest in other than large cap stocks can help them beat the index funds.

Sebi mandated large cap funds to invest at least 80 per cent of the corpus in large cap stocks. It defines top 1 st to 100 th companies in terms of market capitalisation as large cap stocks.


“Even if an active large cap fund invests five to 10 per cent in mid and small cap funds, it will give these funds a kicker to outperform the passive funds. And, whenever we see a broad-based rally, actively managed large cap funds will beat index funds. The 20 per cent portfolio allocation plays an important role. Investors should not opt out of active large cap funds altogether,” says Prashant Maurya, partner, Citrine Financial Advisors. "You can invest 10 per cent of your large cap allocation to passive funds to diversify," he adds.

Also Read

Large cap mutual funds

Are active large-cap mutual funds making a comeback?

Best large cap mutual fund managers 2019

Large cap mutual funds stage a comeback; top schemes offer 20% plus in a year

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