The Right Way To Invest In Large-Cap Schemes

We have not necessarily seen large-cap funds, regular plans at least, beat their benchmarks and therefore, the options that we have given to our experts was, should they be avoided in the short-term from a market risk perspective. Should they be a systematic transfer plan being done in them, should people focus on low index funds to beat the expense ratios, or should people choose flexi-caps over large-caps because a lot of flexi-cap funds have a large degree of large-cap stock element today? Kshitiz, let’s start with you.

Kshitiz Mahajan: I agree with you that there is an underperformance vis-à-vis the benchmark, but it’s obvious, benchmark I think, is more active than your active mutual fund. So, the benchmark in itself is churning fast, benchmark in itself is led by a few companies doing well.

When we reached all-time highs in Sensex, out of 30 stocks, 13 stocks had beaten their all-time previous highs but 17 are still trailing. But when it comes to funds, we have been regulated by SEBI that 80% of the stocks has to be in the top 100 stocks, and then you cap by 10% increase in every single stock not more than that.

So yes, I somehow feel that rather than going for a future large-cap fund, one can look at an index fund or a smart beta fund in index itself. So that’s what the strategy should be. Having said that, somebody who’s already having a large-cap mutual fund portfolio they can stick around, as you know, there are times when fund doesn’t do well but you know, it’s just a cycle. Sometimes your bets will go right and sometimes my bets will go right, so I think the holdings are very, very good.

For a new investment, whether an index fund or holding to the large-cap fund, I think what you said is the right, the answer is in the question only, one should do STP only. We are at the peak of the market, at these levels 12 to 14 weeks STP is what we are recommending to everyone that let’s not be in a hurry to park your money in mutual funds. You have enough time on your side. Take a STP route and look at a low-cost product.

As rightly said, sometimes all these funds over a period of time you say 1.25 plus, 125 bps every year then still the possibility is that we can be in line with the index fund or maybe you can beat the index fund by taking a smart beta fund. So, that’s my submission on how one should approve last year’s space.