Broader Market Schemes See Renewed Flows As Sectoral-Thematic Funds Lose Charm
Multi-cap and large-midcap schemes see significant inflows and strong average returns as investors turn away from underperforming sectoral and thematic funds in volatile markets.
Broader market funds are seeing renewed share of flows as sectoral and thematic funds' promise of stellar returns fails to deliver amid ailing markets post October.
As the broad-based rally in Indian equities narrowed, investors shifted focus from small and midcap funds to sectoral and thematic funds. The promise of lucrative returns based on narratives such as the defence theme, a play on India's infrastructure and manufacturing story, drew record flows into the category.
Supported by a wide interest in the individual stocks, the category surpassed flexi caps to become the largest one based on assets held earlier this year.
While the category attracted a considerably large chunk of the overall flows, it lost its charm as funds in the category also inevitably declined more than the broader markets as Indian equities fell during the month of October, led by a large FPI-led sell-off and earnings disappointments in the second quarter results.
The category's lost charm also reflected in a declining contribution to overall flows into actively managed equity funds as the year went on.
In a turn of events, multi-cap schemes, as well as the often-ignored large and midcap schemes, drew a considerable portion of the overall flows, with the schemes in the categories also recording greater average returns, with most outperforming their respective benchmark indices.
While small-cap funds saw greater average returns across the category, though less than a third managed to beat the benchmark index, which is the Nifty Smallcap 250 Total Return Index for most.
Mid-cap schemes recorded the highest average returns in the category at 30%, with 63% of the schemes outperforming their benchmarks.
An unlikely category stood out among the rest, with the largest share of schemes outperforming the benchmarks—value/contra funds. Per the guidelines set by markets regulator Securities & Exchange Board of India, fund houses are only allowed to offer schemes that follow either a value or contra-based investing strategy and track either the Nifty 500 Total Returns Index or the BSE 500 Total Returns Index as their benchmark.
As many as 86% of schemes in the category outperformed their benchmarks, with average returns of 23%.
