Small equity Mutual Funds with consistent performance

mutual funds

When picking a mutual fund scheme, investors often look at the size of AUM along with past returns and brand name. The size of an AUM does not necessarily signify its potential nor give an indication of future performance. 

You need to understand how the AUM was accumulated, from where and why certain equity funds have more AUM than the others.

Try gauging this from the perspective of a movie, often movies attract cinema goers on the basis of the cast but that does not necessarily translate to a decent cinematic experience, just like you cannot gauge a good movie on the basis of the star cast, in the same manner you cannot infer the performance of a scheme from its AUM size.

We look at some smaller AUM mutual fund schemes to try and understand this better.

Edelweiss Mid Cap Fund

Fund Manager: Mr Harshad Patwardhan

Category: Mid Cap

Date of Inception: 26
th December 2007

Benchmark: S&P BSE Mid Cap TRI

It has beaten the benchmark more than comfortably for 5 years and 10 years respectively. It has also done better when compared to its peers for the same time horizon.

Why are we not considering the returns for 1 year and 3 years?
When looking for mutual fund returns, one needs to look for a minimum time period of 5 years. This is more so the case when it comes to aggressive equity schemes like mid and small. One needs to look at a minimum time horizon of 7 years.

This is because aggressive schemes tend to take the most beating when the markets go through a lean phase; the performance of an aggressive scheme when analyzed has to take into account both,its record during a bull phase as well as a bear phase.

edelweiss mutual fund
As on 30th April 2019 

  1. SEBI regulations mandates that a pure mid cap fund should invest a minimum 65 % into mid cap stocks, here we see the allocation is at 78.80 %. There’s also allocation to small caps to the tune of 18.56 % and 2.40 % with respect to large caps. 
  2. The allocation to large caps is on the lower side.
  3. Even before SEBI's re-categorization exercise of 2018, Edelweiss Fund House was a firm believer in what it called being ''True to Label'' schemes. This would mean aggressive schemes would have aggressive allocation and conservative schemes conservative.
  4. You got what you asked for as far as scheme allocation was concerned and there were no half-hearted attempts so a mere 2.40% allocation to large caps in their Mid Cap scheme should not be surprising.

The following factors should give the Fund a good push in the coming years

sip plans

The Fund is quite the dark horse since HDFC Mid Cap has crossed 20,000 Cr in Aum thereby affecting its liquidity, whereas Mirae Asset Emerging Bluechip as well as Canara Robeco Emerging Equities, both are no more Mid Cap schemes. This creates a vacuum in the Mid Cap sector which Edelweiss Mid Cap can more than merely consolidate

Fund Manager

  1. The role of a fund manager has considerable significance in an active scheme rather than a passive scheme. It gains more significance in an aggressive scheme since it is more volatile than others.
  2. Equity Markets are a place where being reactive can cost you dearly. 
  3. When you have an experienced head on the shoulder to oversee an equity scheme that is more prone to going on a slump as compared to other categories, it helps ease investor’s worries.
  4. The Fund Manager Mr. Harshad Patwardhan has been managing the scheme since its very inception that is 2007. This means he has overseen various market cycles and events for more than a decade and we must say, quite impressively.

Note: Scheme was launched under JP Morgan Mutual Fund which was subsequently taken over by Edelweiss Mutual Fund when it received permission to acquire the same in 2016.

Sundaram Large & Mid Cap Fund

Fund Manager: Mr S. KrishnaKumar

Category: Large & Mid Cap

Date of Inception: 27
th February 2007

Benchmark: Nifty 200 TRI

Sundaram Large & Mid Cap Fund was earlier known as Sundaram Equity Multiplier and later renamed as Sundaram Large & Mid Cap Fund after SEBI’s re-categorization.

sundaram mf
As on 30th April 2019 

Large & Mid cap schemes by SEBI mandate require a minimum 35% investment each in large cap and mid cap stocks. The remaining 30% is at the discretion of the fund manager.

The Fund Manager allocated anywhere between 50 -60 % into large caps and 40-50 % to mid caps. The allocation would of course vary depending on the market scenario; the idea is to stay away from small caps while letting mid–caps work for aggressive returns. 

The overall approach seems like vying for aggressive returns while dealing with minimum volatility.

The scheme is much more stable and consistent as compared to its peers and there are two reasons for this:

  1. It takes on average anywhere between 50 to 60% allocation to large cap stocks which provides stability
  2. The remaining is allocated to mid-cap stocks which garner higher returns.
        It is interesting note here that historically, the fund has stayed away from significant exposure small cap stocks which would explain its lower volatility. We bring up this point since the Fund Manager if needed can allocate 30% to small cap stocks. 

Value of 10,000 Monthly SIP in the Fund

Period Investment   Fund
Last 1 year 1,20,000 1,24,480
Last 3 years 3,60,000 4,26,492
Last 5 years 6,00,000 8,17,664
As on 30th April 2019

Features of the Fund

Sundaram mf


  1. It follows a top down approach with focus on theme/sector allocation with a view to buy the secular growth opportunities in India, combined with bottom up stock selection.
  2. To focus on opportunities predominantly in the Market Cap of Rs 20,000 cr to Rs 70,000 cr that is a sweet spot (smaller larger caps and bigger mid caps).
  3. Fund will invest in approximately 40 stocks on which the fund manager has high conviction. Source: Sundaram Mutual

The fund has been a proven performer over the years and comparatively does much better than its peers during a market slide. 

Volatility Matters

Do not fall for the trap of comparing the fund with say a Mirae Asset Emerging Bluechip and Canara Robeco Emerging Equities which are far more volatile.

How distribution channel influences the AUM of a scheme?
The AUM of a Mutual Fund scheme is usually affected by the following points, besides of course performance

  1. Launch Date
  2. Distribution Channels
  3. Advisors
  4. Advertisement

Launch Date
There’s not much to analyze with this one, the earlier a mutual fund scheme is launched, more the chances of it having a higher AUM

Distribution Channel
Various mutual fund companies often avail banking services of the parent company for the distribution of its schemes. They score over other AMC’s in this aspect. Bank branches of a certain mutual fund company will more often than not suggest schemes of the same AMC rather than any other AMC.

This does not throw light on the performance of a particular scheme but rather it shows how strong its distribution channels are. Not all AMC’s are backed by a parent company which also provides banking services so the gap in AUM of  non-banking banked AMC and banking-backed AMC should come as no surprise.

Even if an advisor is fairly confident in the potential of a scheme, he or say still hesitates to recommend the same since investors still prefer to go with a well-known brand name, often failing to realize that a brand name does not necessarily translate into performance. 

Various well known Mutual Fund houses have schemes that have failed to live up to the hype whereas various schemes of lesser known Mutual Fund Houses have done better than most would have expected. 

Of course an investor is jittery when parting with his/her money so prefers to go with a well-known name and as much as it is not a strong enough reason to do so, one can quite understand the dilemma an investor goes through.

An AMC that has been in the business for a good number of years is more often than not well known, even with people who have never invested in their schemes. Various well known and financially backed mutual fund companies also have a healthy advertisement strategy which helps it outrun the other small AMC’s in the race for AUM.

Besides advertisements being run on various platforms, you also have to look at bank employees of the parent company of the AMC, who not only work as an advertisement source for the AMC but go one step further by performing the sales act

At times, most of us are driven by the brand popularity rather than the products’ performance. 
Remember you are not in a popularity contest, brand popularity is meaningless if the product is poor but the product is still effective despite low brand popularity

So the next time you are about to invest, do not let the popularity of the scheme hold you back. More often than not, the driving force behind the AUM of a Fund is backing of Banking distribution channels which most of the bigger AMC’s today possess.

The AUM of a Fund does not reflect the performance or future prospects of it, rather it is a statement on its distribution channels.

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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

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