Over the past few months the benchmark indices have really gone for a roller coaster ride. The Nifty reached 11000 plus levels in January, suffered greatly after the budget and, after a spell of range bound movements, have recovered to great levels of late. If you have select Nifty stocks in your portfolio, they would have done quite well too. For most of us though, Mutual fund is the vehicle of investment we use, so it makes more sense to see how such investments are doing.
If you have invested in large cap MF schemes, they would have reached their peak NAV’s and therefore highest portfolio value in January 2018. Thereafter, the NAV’s would have gone all over the place and right now most will be lower than the Jan 2018 levels. In this post we will look at why this is so and what does it mean for the future. But before we do that, let us examine some popular large cap MF schemes to see how they have played out. I will take 3 schemes from my own portfolio to illustrate the point.
- The first scheme is Aditya Birla Sun Life Frontline Equity Fund. The NAV reached a peak value of 229.46 Rs on Jan 23rd, 2018 and is currently at 226.54 Rs. You can see from here that it is nearly back to peak level now.
- HDFC Top 100 Fund. The NAV reached a peak value of 490.50 Rs on Jan 24th, 2018 and is currently at 469.49 Rs. It is clear that it is yet to recover fully though it has made up a fair bit from the fall it had.
- ICICI Prudential Blue Chip Fund. The peak NAV was 44.52 Rs on August 9th, 2018 and at present it is at 44.14 Rs. This clearly shows that the fund has recovered well along with the Nifty and has shed off all effects of the deep cuts after budget.
As someone who has significant investments in all of these three, I am obviously pleased with the ICICI fund, happy that the ABSL fund is recovering but unhappy that the losses in the HDFC fund are not recouped, even when Nifty is really at a lifetime high.
Let us now come back to the question of why this is happening in the first place. The following factors are responsible for these variances.
- Though all of these are large cap funds their portfolios vary quite a bit and the overlap with the NIFTY are in varying degrees.
- Even within the Nifty, some stocks have done greatly while others have not. So depending on which stocks the fund have in their portfolio, results will vary.
- Due to the SEBI classification of funds, some of the MF schemes have needed to rejig their portfolios. HDFC Top 200 Fund has now been renamed as HDFC Top 100 Fund and have been affected the most among these 3.
What would have happened if the fund tracked Nifty very closely. The best way to understand this will be to look at any Nifty ETF. For example ICICI Prudential Nifty ETF has an NAV of 118.66 Rs today, which is quite close to the highest NAV of 118.93 Rs. An important point to understand here is that with the SEBI guidelines in place now, the differential returns of actively managed funds will be somewhat muted as compared to what was happening earlier. Over the next 5 years or so Index funds may start doing quite well and may become the main investment choice, as they are in the developed markets such as US and Europe.
Based on all of this, here is what you need to do for the large cap funds in your portfolio:-
- Check the difference in NAV from the 52 week high as of today. In case it is more than 10 % down, there may be a fundamental issue of fund management and you should definitely look at an alternative.
- If the difference is in the range of 5-9 % then review the fund every 2 months and be prepared to change if the gap is increasing.
- For a difference of less than 5 %, you can assume you are in the right fund and do a review every 6 months.
As all of us are aware, the greater pain by far is in the mid cap and small cap funds. I will do 2 more posts shortly covering the same.