Good or bad? Mutual funds that buy too many stocks

History throws up conflicting examples. On the one hand, you have the legendary Peter Lynch's US-based Magellan Fund that bought a whopping 1,400 stocks and yet gunned out over 29 per cent annualised returns over a 13-year period, which prompted even the great man to once remark: "No wonder, I'd gotten a reputation for never having met a share I didn't like." And on the other end is the riches-to-rags story of Morgan Stanley Growth Fund, famous for being the first foreign fund that launched in India and infamous for holding about 300 stocks in its portfolio at one point before exiting the country in tears. With the past throwing up such a fractured mandate, we decided to look at present-day funds in India and whether such bloated funds can generate alpha. Finding fatty funds First and foremost, we went looking for actively-managed diversified equity funds in India. Of 248 such funds, there are eight funds that look extremely stock-heavy. In fact, more than a third of the money has been invested in stocks with less than 1 per cent allocation in their portfolio. But of them, two funds of WhiteOak and HDFC Multi Cap are too new to the market, and we felt it would be unfair to judge them on their recent performance. And so, we present to you the five funds with a long tail (industry jargon for funds having too many stocks in their portfolio). Fund No. of stocks held Stocks in bottom 5% Stocks in bottom 10% Stocks in bottom 33% Nippon India Small Cap 169 36 56 110 HDFC Large and Mid Cap 158 52 70 112 ABSL Small Cap 98 16 27 57 ICICI Pru Multicap 93 19 28 57 Nippon India Multi Cap