CRISIL FUND INSIGHTS

Monthly funds newsletter from CRISIL Research

Volume – 128 December 2021

Investment Active and passive funds can coexist

Investors should make the most of both categories based on their risk-return profiles
thoughts The outperformance of equity markets since March 2020 has swung the spotlight on the relative underperformance of
active funds even as the buzz around passive funds grows louder.

It would, however, be myopic to countenance a long-term view in favour of either category based on this alone.

Indeed, there are multiple layers to the underperformance of active funds, a CRISIL analysis shows.

Underperformance of active funds a reality, but there is more to it

Among actively managed equity funds, it is the large-cap funds category that has fallen behind the most, especially since 2018 when recategorisation
of schemes was effected.

The recategorisation has limited the investments of large -cap funds in lower-capitalisation stocks to less than 20% of the portfolio. Skewed positive
performance of some major companies and the inability of the large -cap funds to replicate the index weights of such companies due to exposure limits
could also be impacting their performance.

Mid-cap funds, too, have seen a dip in alpha in recent times.

Small-cap funds, however, continue to generate alpha versus

Five-year rolling average alpha of major equity-oriented mutual fund categories
their benchmarks. The large number of securities available in the
15% small-cap space also provide a wide array of investment options,
thus benefitting fund management in the space.
10%
Analysis based on weighted average composite performance
5%
indices of the respective funds as ranked under the quarterly
0% CRISIL Mutual Fund Ranking of large-cap, mid-cap and small-cap
-5% funds versus Nifty 50 TRI, Nifty Mid-cap 100 TRI and Nifty Small-
-10% cap 100 TRI respectively.
May-09
May-08

May-10

Jul-13

Jul-14

Jul-15

Aug-16

Aug-17

Aug-18
Mar-05

Sep-20
Jun-11

Jun-12
Apr-06

Apr-07

Sep-19

Oct-21

To be sure, the performance of active funds is also impacted by a

number of other factors — holding period and scheme selection,
among others.
Large Cap Mid Cap Small Cap
As the investment horizon increases, the level of
Source: CRISIL Research underperformance decreases, which indicates that equity
investments are optimised only in the long term. Thus, investors
might still be able to beat the market in their respective fund category if they hold on to their mutual funds over the long term.

Similarly, prudent scheme selection can impact portfolio performance. Dispersion of alpha shows that there is stark divergenc e between the best and
worst funds in all categories. Thus, an investor who does not choose the right fund, or monitor the funds invested in regularly, might end up with
deficient alpha.

A combination of active and passive funds can work

Individual participation in equity-oriented mutual funds continues to be focussed on actively managed funds. This is evident from the folio count of over
7.5 crore in the category compared with just about 16 lakh in passive funds 1.

Given the right investment horizon and prudent scheme selection, active funds can certainly deliver the desir ed returns.

Lately, however, passive funds have grown exponentially in India. The spurt has been led by adoption of passive investing by large institutional investors
such as provident fund trusts.

The potential for passive funds is also huge, considering the underpenetrated market and associated low costs. Asset manufacturers limited by
regulation to launch products in the active space are expected to launch products in the passive space to shore up assets.

However, for mutual fund penetration to increase, hand-holding will have to play a major role. Yet, the low cost structure of passives might not
incentivise intermediaries to take the product inland.

From an industry point of view, therefore, both these categories are equally important.

As for investors, a well-rounded portfolio with a mix of active and passive funds, based on the investor’s goal orientation, risk profile and preferen ce, is
the path to take.

This article was first published in Hindu Business Line

1 Source: AMFI, data as of September 2021

• The S&P BSE Sensex and Nifty 50 lost nearly 4% in November
Market – Overview tracking weak global cues including global inflationary pressure and
rising Covid-19 cases in Europe and South Africa.
% Change % Change
Indices • Also, back home, too, inflation accelerated, raising concerns among
in Nov 2021 in Oct 2021 investors it may prompt the central bank to hike rates sooner than
Nifty 50 -3.78 0.30 expected. India’s retail inflation rose marginally to 4.48% on-year in
S&P BSE Sensex -3.90 0.31 October from 4.35% in September.
• Selling by foreign institutional investors (FIIs) also weighed on the
markets.
Indicators Nov 30, 2021 Oct 29, 2021 • However, some losses were trimmed on optimism over strong
10-year Gsec 6.33% 6.39% quarterly earnings and encouraging domestic economic data.
Monthly CPI Inflation 4.91% 4.48% Investors continued to be buoyed by the strong GST collection and
services activity numbers.
• Optimism about higher foreign inflows after inclusion of a few Indian
stocks in the MSCI India Index also lifted market sentiment
• Persistent buying by domestic institutional investors (DIIs) and
mutual funds also buoyed the market.
• Nifty sectoral indices mostly ended mixed, with Nifty Bank (~8.7%),
Nifty financial service (~6.7%) and Nifty Metal (~6.5%) falling the
most.

Mutual fund - Overview Mutual fund AUM and net flows trend
40 1,600

(Net Flows Rs billion)

Top Stock Exposures – Nov 2021 Top Sector Exposures – Nov 2021 38 1,100
1. ICICI Bank Ltd. 1. Banks 36
(AUM Rs trillion) 600
2. HDFC Bank Ltd. 2. Computers - Software 34
Infosys Ltd. Pharmaceuticals 100
3. 3. 32
4. Reliance Industries Ltd. Refineries/Marketing -400
4. 30
5 State Bank Of India 5. NBFC 28 -900
6. HDFC Ltd. 6. Engineering, Designing, Construction 26 -1,400
7. Bharti Airtel Ltd. 7. Cement 24 -1,900
8. Axis Bank Ltd. 8. Housing Finance 22 -2,400

Oct-21
Jul-21
9. Tata Consultancy Services Ltd. Telecom - Services

Mar-21

May-21
Apr-21
Feb-21

Aug-21
Dec-20

Jan-21

Jun-21
Nov-20

Sep-21

Nov-21
9.
10. Larsen & Toubro Ltd. 10. Passenger/Utility Vehicles

New Stocks Entries and Exits in Mutual Fund Portfolios – Nov 2021
Net flows (Rs billion) Industry Month-end AUM (Rs trillion)
Entries Exits
PB Fintech Ltd. Minerva Holdings Ltd.
• Assets under management (AUM) of the domestic mutual fund
One 97 Communications Ltd. Rajinder Steels Ltd.
industry increased in November, closing at a record Rs 37.34 lakh
Latent View Analytics Ltd. Tata Steel BSL Ltd.
Tarsons Products Ltd. Lyka Labs Ltd.
crore (excluding domestic fund of funds), higher than previous Rs
Go Fashion (India) Ltd. Ugro Capital Ltd. 37.33 lakh crore in October owing to inflows spread across open-
Sapphire Foods India Ltd. Hindustan Foods Ltd. ended equity, debt and hybrid categories.
S.J.S. Enterprises Ltd. • Aggregate net inflows for the open-ended equity category stood at
Data Patterns India Ltd. ~Rs 11,615 crore in November, more than twice of that in October’s
Arihant Superstructures Ltd. ~Rs 5,215 crore. Within the category, flexi-cap schemes and large-
cap schemes continued to witness inflows. Equity linked savings
schemes (ELSSs) inflows reduced to ~Rs 174 crore, owing to investor
interest in the tax-saving instrument as the financial year nears its
Absolute monthly returns %
Category returns close.
Nov Oct
Large cap funds -3.75 0.96 • Value/ contra schemes also recorded inflows of ~Rs 439 crore in
Large cap and mid-cap funds -2.48 1.18 November after witnessing outflows in the previous five months.
Multi cap equity funds -2.03 1.59 • Furthermore, Investor enthusiasm for systematic investment plans
Flexi cap funds -2.90 1.03 (SIP) continued unabated with November’s figure was a new record
Focused funds -2.82 1.76
high of Rs 11,005 crore.
Value – Contra funds -3.57 1.54
-1.78 1.19
• Hybrid schemes recorded net inflows for the eleventh straight month
Mid-cap funds
Small cap funds 0.73 0.58 at ~Rs 9,422 crore in November compared with ~Rs 10,437 crore in
Arbitrage funds 0.37 0.31 October.
ELSS -2.83 1.17 • ETFs (both equity and gold) and index schemes cumulatively saw net
Index funds -3.83 0.41 inflows of ~Rs 10,686 crore in November compared with ~Rs 9,245
Aggressive hybrid funds -2.05 0.75 crore in October.
Conservative hybrid funds -0.16 0.32
• Furthermore, FoFs that invest overseas saw net inflows at Rs 338
Gilt funds 0.65 -0.17
crore in November, lower than ~Rs 1,514 crore of net inflows seen in
Dynamic funds 0.60 -0.07
October.
Medium-to-long term funds 0.61 -0.15
Medium term funds 0.50 0.04 • Open-ended debt schemes witnessed net inflows of ~Rs 14,893 crore
Short-duration funds 0.38 0.09 in November, as against ~Rs 12,984 crore net inflows in October
Corporate funds 0.43 0.06 • Within the category, liquid schemes recorded the highest net inflows
Banking and PSU debt fund 0.45 0.04 of ~Rs 53,251 crore, while medium to long duration schemes saw net
Credit risk funds 0.50 0.27 inflows of ~Rs 901 crore.
Low duration funds 0.30 0.21 • In the closed-ended debt category, marginal net inflows worth ~Rs 7
Money market funds 0.35 0.21
crore compared with net outflows of ~Rs 1,080 crore in October due
Ultra-short duration funds 0.31 0.21
to redemptions.
Liquid funds 0.30 0.26
Category returns represented by average of CRISIL ranked funds – September 2021 • SEBI came out with fresh operating norms for the introduction of
silver exchange traded funds (ETFs) in India.
CRISIL Fund Rank 1 Schemes - Hybrid Fund Focus
Mutual Funds' Performance Report
Point to Point Returns %
Canara Robeco Equity Hybrid Fund
Average Std.
Inception Sharpe
Scheme Name AUM Deviation
1 3 6 1 3 Since Date Ratio Launched in March 1998, Canara Robeco Equity
Month Month Month Year Years Inception ([Link]) (%)
Aggressive Hybrid Hybrid Fund featured in the top 30 percentile of the
BOI AXA Mid & Small Cap Equity & Debt Fund 1.90 4.72 22.18 53.36 22.72 16.86 20-Jul-16 345.68 19.45 1.46
aggressive fund category of CRISIL Mutual Fund
PGIM India Hybrid Equity Fund -1.82 1.34 9.95 28.18 13.99 13.58 5-Feb-04 136.33 19.81 0.88
Kotak Equity Hybrid -1.22 3.01 9.83 33.38 19.09 11.86 3-Nov-14 1922.95 19.81 1.21 Ranking (CMFR) in the 12 quarters ended
Arbitrage September 2021. The fund’s average assets under
Tata Arbitrage Fund 0.36 0.78 1.93 3.98 NA 5.09 18-Dec-18 11239.92 1.35 2.29
management stood at Rs 6,247 crore in the quarter
Kotak Equity Arbitrage Fund 0.40 0.93 2.11 4.20 4.83 7.00 29-Sep-05 24790.27 1.28 2.12
Conservative Hybrid ended September 2021.
Kotak Debt Hybrid -0.21 3.17 6.78 15.82 12.99 8.39 2-Dec-03 876.05 7.20 1.99
Canara Robeco Conservative Hybrid Fund 0.10 1.06 5.06 11.26 11.44 10.07 3-Apr-01 781.05 6.14 1.98
Performance
The fund has outperformed its benchmark (CRISIL
Hybrid 35+65 - Aggressive Index) and category
CRISIL Mutual Fund Ranks as of September 2021 (represented by funds ranked under the aggressive
Point to Point Returns are as on November 30, 2021
Returns are annualised for periods above 1-year, other wise actualised hybrid category in CMFR – September 2021) in most
Risk Ratios are annualised of the periods analysed. It has returned ~17% since
Period for Risk Ratios is three years
For Sharpe Ratio the risk free rate is 4.43% - the average 91-day T-Bill auction cut-off rate for three years its inception.
Average AUM is 3-months average number as disclosed by AMFI for the period July-September 2021
Chart 1: Performance as on December 13, 2021
30 29.1
25.5
25 22.9

Returns (%)
20 18.0
16.016.6
15.4 14.7 15.6
Average Assets under Management - A Bird's Eye View 15 13.5 14.213.9

Jul-Sep Apr-Jun
Change %
Jul-Sep Apr-Jun
Change % 10
Mutual Fund (MF) Name 2021 2021 Mutual Fund (MF) Name 2021 2021 1 Years 3 Years 5 Years 10 Years
([Link]) Change ([Link]) Change
(Rs. Cr) (Rs. Cr) (Rs. Cr) (Rs. Cr) Period
SBI Mutual Fund 579318 524316 55002 10.49% HSBC Mutual Fund 11476 10815 660 6.11% Canara Robeco Equi ty Hybrid Fund - Regular Plan - Growth
ICICI Prudential MF 461289 429229 32060 7.47% PGIM India Mutual Fund 11185 8110 3075 37.91%
Category
CRISIL Hybrid 35+65 - Aggressive Index
HDFC Mutual Fund 441852 418947 22904 5.47% Principal Mutual Fund 8930 8038 892 11.10%
Note: Returns above one year are annualised
Aditya Birla Sun Life MF 299382 275904 23478 8.51% BNP Paribas Mutual Fund 8745 8122 623 7.67%
Kotak Mahindra MF 270615 247750 22866 9.23% Union Mutual Fund 7300 5916 1384 23.39% Better risk-adjusted returns
Nippon India Mutual Fund 267213 242102 25111 10.37% Mahindra Manulife MF 6687 5664 1023 18.06% The fund outperformed its category and benchmark
Axis Mutual Fund 238575 208505 30070 14.42% IDBI Mutual Fund 4384 4295 89 2.07%
on a risk-adjusted basis, as measured by the
UTI Mutual Fund 208971 187210 21761 11.62% Quant Mutual Fund 3301 1642 1659 101.02%
IDFC Mutual Fund 126560 126268 293 0.23% IIFL Mutual Fund 3128 2591 537 20.73%
Sharpe ratio (higher the better), over the three years
DSP Mutual Fund 107290 104026 3264 3.14% BOI AXA Mutual Fund 2494 2211 283 12.79% ended December 13, 2021. The fund’s Sharpe ratio
Mirae Asset Mutual Fund 91802 78139 13663 17.49% JM Financial Mutual Fund 2089 2135 -45 -2.13% was 1.25, against 1.05 and 1.20 for its category and
L&T Mutual Fund 78274 75531 2743 3.63% Quantum Mutual Fund 2012 1945 67 3.44%
benchmark, respectively, during the period.
Tata Mutual Fund 77010 66999 10010 14.94% ITI Mutual Fund 1983 1562 421 26.94%
Edelweiss Mutual Fund 69188 61256 7932 12.95% IL&FS Mutual Fund (IDF) 1385 1686 -301 -17.83% SIP returns
Franklin Templeton MF 64587 61636 2950 4.79% Trust Mutual Fund 1033 858 175 20.39% If an investor had set aside Rs 1,000 every month
Invesco Mutual Fund 42930 39016 3914 10.03% Navi Mutual Fund 867 728 139 19.06%
under the systematic investment plan (SIP) for five
Canara Robeco MF 39344 32541 6804 20.91% Indiabulls Mutual Fund 655 632 23 3.58%
Motilal Oswal Mutual Fund 33544 29428 4116 13.99% IIFCL Mutual Fund (IDF) 612 596 16 2.63%
years ended December 13, 2021, the investment of
Sundaram Mutual Fund 33377 32151 1225 3.81% Taurus Mutual Fund 539 496 43 8.74% Rs 60,000 would have grown to Rs 91,311 at a
LIC Mutual Fund 18040 17642 398 2.26% Shriram Mutual Fund 217 208 10 4.68% compounded annualised growth rate of 17.09%.
PPFAS Mutual Fund 15943 11343 4600 40.56% YES Mutual Fund 46 81 -36 -43.71%
Similar investments in the benchmark for the same
Baroda Mutual Fund 11953 10645 1309 12.29% Grand Total 3656125 3348915 307210 9.17%
period would have grown to Rs 89,364 at 16.20%
AAUM is the quarterly average number and includes domestic fund of funds
Portfolio analysis
Over the three years ended November 2021, the
fund’s exposure to equities averaged 71% of total
assets. On the debt front, the fund’s three-year
average exposure was 1.2% to certificates of
deposit and commercial papers, 6.9% to
government securities and treasury bills, and 15%
to non-convertible debentures and bonds
Fund manager
The fund’s equity portion is managed by Shridatta
Bhandwaldar, BE (Mechanical) and MMS (Finance),
with 14 years of experience in fund management.
The debt portion is managed by Avnish Jain (PGDM
– IIM and BTech), with 23 years of experience .
Crossword Corner – boost your financial knowledge
Horizontal
1 6 1) Funds with at least 80% investment in large cap stocks (5,3)
2) This is used by financial advisors to assess the investor's capability to bear loss, and
4 suggest suitable investments (4, 7)
3) An asset class that is volatile over the short term and is therefore intended for
2 5
risktakers (6)

Vertical
4) Funds with at least 65% investment in mid cap stocks (3,3)
5) Funds which seek to mirror particular benchmark performance (7)
6) Fund involving assessment of market conditions and in depth research (6)

Answers
Vertical:
4) Mid Cap 5) Passive 6) Active

Horizontal:
1) Large cap 2) Risk profile 3) Equity

Contact Details
Amit Bhardwaj: +91 22 6172 3189; [Link]@[Link]
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Ankur Nehra: +91 124 6722 418; [Link]@[Link]
Pradeep Nair: +91 22 3342 3539; [Link]@[Link]

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