Large cap funds are recommended as core portfolio holdings for their stability and low volatility during different market cycles. There are AMCs that have more than one fund in this category, barring 12 that do not have any offering in this category. Funds in this category largely invest in well-established companies with varied business interests, largely from the Sensex or the Nifty indices. These funds have proven to be more resilient during market downturns but lag compared to funds in other categories during market rallies. The returns trade off was visible in the 2008 bear year, which was again demonstrated in 2011 when category lost 23.10 per cent compared with 24.64 per cent by the Sensex. Individually, Canara Robeco Large Cap+ was the least hit with 12.76 per cent.
However, these funds are slow to catch up when the markets surge. Franklin India Bluechip, the best performing fund in 2009, posted 84.49 per cent returns compared with 81.03 per cent by the Sensex, which is marginal when compared with 147.30 per cent returns posted by Principal Emerging Bluechip, a mid- and small-cap fund, which was the best among the equity diversified fund universe.
Over the past two years, 10 Index funds have been launched taking the the total number of index funds to 31 between 2007 and 2012. However, index funds manage about 9 per cent of the assets in the category, compared with actively managed funds.
Alpha scores over passivity
The active versus passive fund management debate is endless, with proponents of the two schools of thought flashing out the data to support their respective case. Actively managed funds are those in which the portfolio manager tries to beat the benchmark index or the market by picking and choosing investments. In comparison, Index funds are passive because the fund manager tries to mirror the returns of the index it follows by purchasing all or almost all of the holdings in the index.
When we analysed the large-cap category funds, actively managed funds fared well largely because information asymmetry exists in our markets. Comparing 5-year trailing returns, only one out of the 16 passively managed funds have performed better than the category average returns. And, ICICI Prudential Index, the best performing index fund had 3.80 per cent returns compared with 7.20 per cent returns earned by Franklin India Bluechip, the top performing actively managed fund.
Although, the percentage of passive funds outperforming the benchmark they track has increased, their popularity has not soared despite their low expense ratio of 1.5 per cent compared with the average 1.76 per cent of the actively managed funds. Further, of the 88 large-cap funds, there are 31 index funds including 11 ETFs, but these account for just 9 per cent of the total assets in the category.
* Franklin India Bluechip, the best performing fund over the past 10-years had an annualised 24.97 per cent return compared to 18.12 per cent returns earned by ICICI Prudential Index Retail, the best performing index fund in the category
* In isolated bear phase as in 2011, 67 per cent of the actively managed funds outperformed the benchmark
* Over the past four out of five years, a majority of the actively managed funds have outperformed the Sensex on an year-on-year basis.