DSIJ.in JULY 8 - 21, 2019 I DALAL STREET INVESTMENT JOURNAL (^69)
MF page - 03
invest a maximum of up to 35% in debt, if he believes
that equities are volatile now and debt is the right place
to be in.
Now the question arises as to why one should invest in
multi-cap funds when they can invest in a portfolio of large-
caps, mid-cap and small-cap funds and can tweak the
proportions based on the individual risk and requirements?
When you invest in a multi-cap fund, the fund manager, who is
an expert professional having good amount of experience and
knowledge about the markets, can take a call and act upon it
without any delay. However, when you manage a portfolio
yourself, you need to have appropriate knowledge and
experience and, on top of that, the time to manage your
portfolio yourself. However, this again opens the question as to
how multi-cap funds fare when it comes to the portfolio of
large-cap, mid-cap and small-cap funds. Is it worth getting your
hands dirty and manage the portfolio yourself?
The study
To understand it and get a better insight, we need to know how
these categories (multi-cap, large-cap, mid-cap and small-cap)
have performed compared to each other during different time
frames. Besides, we have also taken equity bellwether index,
Sensex, to understand the return pattern of funds. While
studying the performance, we have considered 1-year, 3-year
and 5-year annualised rolling returns for the period from June
11, 2008 to June 19, 2019. It is to be noted that the rolling
returns have been calculated on the daily NAVs for the period
and an average of the same is taken.
- Equal Weighted Portfolio Of Large-Cap, Mid-Cap And Small-Cap Funds
7.00%
9.00%
11.00%
13.00%
15.00%
17.00%
19.00%
21.00%
23.00%
25.00%
1-Year 3-Year 5-Year
Rolling Returns of all the categories
Multi Cap Large Cap Mid Cap Small Cap Portfolio Sensex
If we look at the above table and graph, we see that among the
different categories, mid-cap funds have consistently
outperformed other fund categories over all time frames. It is
followed by the small-cap funds and equal-weighted portfolio
of large-cap, mid-cap and small-cap funds. The frontline index
Sensex, however, has performed poorly as compared with the
other categories. These numbers are average and hence, to get a
better understanding of the returns, we dived deep to
understand how these categories fair in different market
scenarios.
When the frontline index is failing
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
180.00%
6/11/200810/11/20082/11/20096/11/200910/11/20092/11/20106/11/201010/11/20102/11/20116/11/201110/11/20112/11/20126/11/201210/11/20122/11/20136/11/201310/11/20132/11/20146/11/201410/11/20142/11/20156/11/201510/11/20152/11/20166/11/201610/11/20162/11/20176/11/201710/11/20172/11/20186/11/2018
1 - Year Average Rolling Returns
Multi Cap Funds Large Cap Funds Mid Cap Funds Small Cap Funds Sensex
We studied a total of 2740 instances. If
we look at the performance of different
categories of funds in a falling market,
then clearly Sensex has given best
returns or has fallen lesser than other
categories of funds. It is followed by
large-cap funds and multi-cap funds.
But the mid-cap and small-cap funds
clearly fail to withstand the shocks of
the falling market.
Particulars 1-Year 3-Year 5-Year
Multi-Cap 17.64% 14.54% 15.75%
Large-Cap 15.60% 12.68% 13.71%
Mid-Cap 22.42% 18.98% 20.52%
Small-Cap 21.54% 18.18% 19.51%
Portfolio* 19.85% 16.61% 17.91%
Sensex 13.60% 10.05% 10.79%
The following table shows the average returns generated by different categories of funds over different time periods.