Inconsistency, performance gap bother MFs | Economic Times

A rising tide lifts all boats but this doesn’t seem to apply to the mutual fund (MF) industry. Performances in the past year have been scattered across the returns chart despite a strong broad-based rise in the equity markets. While the difference between the top and the worst performer in various equity schemes has been wide, what may be worrying for investors is the inconsistency in performance in some product categories.85552767For instance, the differential in returns is highest in the small cap category — at 52.9 percentage points — where volatility is greater than in large cap stocks. Top performer Quant Small Cap returned 111.6% while bottom performer ITI Small Cap gave 58.74% returns. But the majority of schemes outperformed the benchmark S&P BSE 250 SmallCap TRI that returned 75.3% in this period.In the midcap space, the differential is narrower, with top performer PGIM India Midcap at 85.46% and Taurus Midcap at 45.45%. Most of the schemes, however, lagged behind index gains at 64.43%.In the large cap category, where a fund manager needs to allocate at least 80% to the top 100 stocks by market value, top performer Franklin Bluechip returned 54.64% while JM Large cap returned 32.54%. Here, most funds underperformed the benchmark’s 48.41% rise. “Market cycles are compressing, positions are shifting fast and the gap between peak and trough is widening because of high volatility,” said Nirav Karkera, head-research, Fisdom.While the differences in performance between the best and the worst in the flexi-cap category—where mutual funds can invest across share groups without restrictions—were stark, the majority of the products in this category managed to outperform the benchmark (50.85%). Many investors are tempted to invest in the top performers and exit the bottom performer, but financial planners said they must be cautious when the markets are near record highs.“The top performer many a time could be a fund who has taken concentrated bets, has low assets under management or simply played momentum, which worked in a bull market while the bottom performer could have a well-diversified lower risk portfolio that will do well in the long term,” said Anup Bhaiya, chief executive, Money Honey Financial.