67% of open-ended equity diversified mutual funds outperform benchmarks in August: PL Capital
During the month, key indices like the Nifty 50 TRI posted a monthly return of 1.74 percent, while the Nifty Midcap 150 TRI and Nifty Small Cap 250 TRI followed with 0.90 percent and 1.17 percent gains.
Around 67 per cent of open-ended equity diversified mutual funds outperformed their benchmarks in August, as compared to 39 per per cent in July, according to a recent study by PL Capital
In August, key indices such as Nifty 50 TRI posted a monthly return of 1.74 per cent, while the Nifty Midcap 150 TRI and Nifty Small Cap 250 TRI registered 0.90 and 1.17 per cent gains, respectively.
In the Large cap category, Motilal Oswal Large Cap Fund-Regular (G) posted a monthly return of 3.14 per cent with an asset under management (AUM) of Rs 1,076.70 crore. Bandhan Large Cap Fund-Regular (G) showed a gain of 2.89 per cent.
In Large and Midcap category, Motilal Oswal Large & Midcap Fund-Regular (G) posted a return of 4.59 per cent. Motilal Oswal Multi Cap Fund-Regular (G) delivered the highest return of 6.64 per cent in the Multi Cap category. Bandhan Small Cap Fund-Regular (G) led small-cap funds and registered a growth of 6.31 per cent and the yield of Motilal Oswal ELSS Tax Saver Fund-Regular (G) went up by 4.34 per cent in the equity linked saving scheme (ELSS) category.
According to AMFI’s monthly data, in August, open-ended equity mutual fund inflows reached Rs 38,239.16 crore, a gain of 3 per cent, and net AUM stood at Rs 66.70 lakh crore.
Systematic Investment Plan (SIP) contributions for the month also grew to Rs 23,547 crore against July’s Rs 23,331 crore. SIP AUM reached Rs 13.39 lakh crore. The total number of SIP accounts increased to 9.61 crore in August, as compared to 9.34 crore in July.
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Also read: Five highlights for equity markets from AMFI’s latest data
Benchmark outperformance
In July, 39 per cent of the funds outperformed their benchmarks.
The report noted that large and mid-cap funds performed the best. Around 79 per cent of the schemes outperformed the benchmark (Nifty Large Midcap 250-TRI). The second-best performance came from focused funds, which outperformed their respective benchmark (Nifty 500-TRI) by 75 per cent.
Multi-cap, mid-cap and flexi-cap funds outperformed their respective benchmark by 69 per cent each. On the contrary, large cap funds were the least performing fund category. Data shows 55 per cent of these funds outperformed the benchmark.
Pankaj Shrestha, Head of Investment Services, PL Capital, said, there were strong inflows into large, mid-cap, and multi-cap categories due to their performance. “Flexi-cap funds, which have up to 65 per cent exposure in large-cap stocks, have not performed well. In contrast, large, mid-cap and multi-cap funds, with flexible allocations, offer higher outperformance potential,” he added.
Shrestha noted that large-cap funds are struggling to beat benchmarks, driving investors towards index funds. He cited that small-cap and multi-cap categories, with broader allocation, are better for generating alpha (Alpha refers to excess returns earned on an investment above the benchmark return when adjusted for risk). Multi-cap funds allocate at least 25 per cent to large, mid, and small-cap stocks.
“In hybrid equity funds, there’s been a renewed interest, especially after the Union budget in July, which raised taxes on equity gains and narrowed the gap between equity and debt investments,” Shrestha added.
What’s next?
Shrestha exuded confidence about the US Fed rate cut as a positive for the Indian capital market. “Lower interest rates are expected to reduce costs for consumers and corporations. The move will boost overall spending and corporate profitability, leading to improved stock performance and mutual fund returns,” he said.
He also highlighted the strong liquidity in the market. “Net monthly inflows into equity funds have exceeded Rs 34,000 crore for the past four months. Investors are increasingly comfortable with new categories of funds like multi-cap and large and mid-cap, which are expected to perform better in the future due to their flexibility, as compared to more restrictive categories like large-cap funds,” he added.
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