These four mutual funds went from zero to hero this year

Like batters in cricket have a lean patch for a few months or even years - ask Virat Kohli, who experienced a lengthy downturn for almost three years - mutual funds are also prone to blowing hot and cold.

Taking a cue from Kohli's comeback after a long lull, we, too, identified mutual funds that went to hell and back.

Back in form

Coming back from rock bottom is a tough challenge. No wonder only four funds that were languishing in the bottom quartile between 2020 and 2022 could manage to sit pretty in the top quartile this year. These funds are:

• DSP Focus
  
• DSP Top 100 Equity
  
• Motilal Oswal ELSS Tax Saver
  
• Motilal Oswal Flexi Cap

From coughing out piffling returns from 2020 to 2022, these funds scripted a remarkable turnaround by gunning out anything between 25 and 35 per cent this year.

So, let's look at some of the reasons why they managed to hit a rich vein of form.

DSP Focus

This fund delivered 34 per cent returns this year against the category average of 27 per cent as of December 27, 2023.

Reasons for turnaround

• The fund increased its mid-cap allocation, and these picks did well this year. That said, their large-cap picks did even better.
  
• The automobile sector, which was a drag between 2020 and 2022, rebounded this year. In fact, the fund increased its automobile allocation from 6 to 11 per cent, too.
  
• The fund exited the telecommunication sector, something that had held it back during its dark phase.
  
• The healthcare sector displayed signs of revival this year, leading to an increased allocation. Confidence in capital goods and financials reaped rewards, too.
  
• The fund benefited from Polycap India and Ipca Labs's dream run this year.

DSP Top 100 Equity

This fund delivered 26 per cent returns this year against the category average of 25 per cent as of December 27, 2023.

Reasons for turnaround

• Like DSP Focus, this fund was similarly hurt by its healthcare picks between 2020 and 2022. However, a renewed performance coincided with an increased allocation from 8 to 15 per cent this year.
  
• It also doubled its automobile picks, which are among the best-performing sectors this year.
  
• Notably, the fund exited its sizable construction sector allocation at the start of 2022.
  
• Tata Motors and ITC did well. Ditto with Ipca Labs, which had underperformed its benchmark in the 2020-2022 period.

Motilal Oswal ELSS Tax Saver

This fund delivered 38 per cent returns this year against S&P BSE 500 TRI's 26 per cent as of December 27, 2023.

Reasons for turnaround

• This fund's perseverance with small- and mid-caps paid off this year.
  
• A notable trend was the fund's growing confidence in the services sector. It increased its average allocation from 7 per cent during 2020-2022 to 12 per cent this year. This sector, along with healthcare and capital goods, has been among the top performers for the fund.
  
• While consumer discretionary, which faced challenges between 2020 and 2022, showed signs of improvement, consumer staples remained a pain point.
  
• Kaynes Technology and Zomato were instrumental in the fund's road to redemption.

Notable mention

• The fund saw a change in fund managers, with Niket Shah and Ajay Khandelwal stepping into Aditya Khemani's shoes this October. Since Khetani helmed it until very recently, we can attribute the change in the fund's fortunes to him.

Motilal Oswal Flexi Cap

This fund delivered 33 per cent returns this year against S&P BSE 500 TRI's 26 per cent as of December 27, 2023.

Reasons for turnaround

• The fund's strategic shift towards mid- and small-caps - moving from an average of 23 per cent in 2022 to 40 per cent in 2023 - proved successful.
  
• Niket Shah was appointed as the fund manager in November 2022. That Shah previously managed the mid-cap space was evident when this fund amplified its mid-cap allocation this year. In fact, he changed the fund's portfolio root and branch, with only around 25 per cent of the portfolio surviving the axe.
  
• The fund's allocation in financials was reduced this year. It also exited its insurance picks.
  
• Its confidence in the automobile sector paid off after a long lull.
  
• The fund's increasing conviction in the services sector - average allocation rose from 3 per cent in 2020-2022 to 12 per cent in 2023 - proved successful.
  
• Trent and Zomato's rallies were particularly impactful.

Also read: Do focused funds give better returns than flexi-cap funds?