At a time when the benchmark indices—30-share BSE Sensex and 50-share Nifty—have doubled from the lows of March last year, the performance of most large-cap nondepository establishment schemes has not been encouraging then the schemes are losing their sheen.
As a result, actively managed funds where high weights are given to few outperformers aren’t able to generate the alpha.
Experts say an investor must have an allocation to large-cap funds within the portfolio as they supply better protection against volatility compared to mid-and small-cap funds.
Before selecting a large-cap fund, see whether the scheme has been able to maximize the shift within the sectoral rotation over an extended period.
Moreover, investors should analyze whether the fund manager follows the buy-and-hold strategy or churns the portfolio. If the churning is frequent, then the fund manager doesn’t have conviction in his stock selection.
The market will broadly still offer alpha-generating opportunities for better-managed funds. Well-managed large-cap funds have created significant long-term wealth for investors within the past and might still do so, going ahead.
Go passive If selecting an active fund is additionally a challenge, select passive funds like Nifty 100 and also the Nifty Next 50 as they mirror the index returns.
The passive funds will ensure a stable large-cap component within the portfolio which will add a line with the market and provide higher returns.
Fund houses are launching a spread of passive funds across categories as investors are increasingly choosing passive funds thanks to lower costs and better returns than active funds.
Because it’s becoming difficult for fund managers to return up with the alpha in actively managed funds, especially the large-cap ones, asset management companies are lining up new fund offers within the index funds.
Moreover, young retail investors are preferring to need an edge on passive funds launched by fintech platforms thanks to the convenience of investing.
To not mention these factors, the market regulator’s classification norm for mutual funds made it difficult for large-cap funds to return up with the alpha as these funds were mandated to need a foothold within the highest 100 companies by capitalization.
Experts say an investor must have an allocation to large-cap funds within the portfolio as they supply better protection against volatility compared to mid-and small-cap funds.
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