India's best performing mutual funds for July 2022

India Infoline News Service
01 Aug , 2022
9:32 AM

In July 2022, the Nifty surged by +8.73%. This comes after 4 consecutive months of fall in the Nifty. The robustness was also visible in the smaller indices. In July 2022, the mid-cap index rallied by +12.03% while the small cap index also surged by +9.29%. The broad-based rally was also manifested in the improvement in advance / decline ratio of the overall market. But, what exactly led to this sharp rally in the indices, especially in the 2nd half of July 2022?

One of the primary driving factors for the rally was the turnaround in FPI sentiments. After being net sellers for 9 months since October 2021, FPIs turned net buyers to the tune of Rs4,989 crore in equities in the month of July 2022. One can argue that the inflow is just about $618 million against FPI outflows of $35 billion, but it is the shift in sentiments that really matters. The other factor was the Fed going relatively soft and indirectly hinting that they may do a rethink if the US economy saw negative growth. These factors helped the rupee stabilize around the 80/$ levels and aided the bounce in the stock market indices.

During July 2022, the 10 year bond yields trended lower compared to June 2022 and stayed in the range between 7.2% and 7.4%. The panic of June was not visible in July and that helped bond prices stabilize, which was reflected in better performance by the debt funds, especially the ones with longer duration. One factor responsible for the stable bond yields was the hope that the RBI would go slow in its August MPC meeting, even if the Fed opted for a more hawkish tone. Here is the mutual fund performance story of July 2022.

Equity Large-Cap Funds

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Canara Robeco Blue-Chip (G)	3.972%	17.929%	13.165%
Axis Blue-Chip Fund (G)	1.338%	14.366%	13.020%
ICICI Pru Blue Chip (G)	10.511%	16.632%	11.615%
Data Source: Morningstar

Equity Multi-Cap Funds

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Quant Active Fund (G)	7.257%	32.965%	20.987%
Mahindra Manulife Multi (G)	4.798%	23.231%	13.391%
Nippon India Multi Cap (G)	18.118%	18.456%	12.242%
Data Source: Morningstar

Equity Mid-Cap Funds

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Quant Mid-Cap Fund (G)	12.656%	34.271%	19.147%
PGIM India Mid-Cap Fund (G)	10.708%	37.904%	17.751%
Axis Mid-Cap Fund (G)	4.621%	24.053%	16.914%
Data Source: Morningstar

Equity Small-Cap Funds

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Quant Small Cap Fund (G)	-1.793%	44.363%	19.881%
Axis Small Cap Fund (G)	7.788%	29.150%	18.369%
SBI Small Cap Fund (G)	9.307%	29.017%	17.637%
Data Source: Morningstar

Equity Linked Savings Schemes (Tax Saving)

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Quant Tax Plan (G)	8.515%	35.762%	20.507%
Canara Robeco Tax Saver (G)	5.587%	21.534%	15.111%
Mirae Asset Tax Saver (G)	4.945%	20.360%	14.674%
Data Source: Morningstar

Balanced Funds (Aggressive Allocation)

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Quant Absolute Fund (G)	8.196%	27.955%	17.750%
ICICI Pru Equity & Debt (G)	16.716%	19.564%	13.215%
BOI AXA Mid and Small (G)	-1.775%	25.185%	11.809%
Data Source: Morningstar

Balanced Funds (Conservative Allocation)

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Kotak Debt Hybrid (G)	5.020%	10.815%	8.012%
ICICI Pru Regular Savings (G)	6.785%	9.202%	7.871%
Canara Robeco Hybrid (G)	3.347%	9.542%	7.567%
Data Source: Morningstar

Arbitrage Funds (Cash-Futures)

Top performing Regular Plans (Growth Option) on 5-year returns (as on 30th Jun-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Kotak Equity Arbitrage (G)	3.463%	4.172%	5.063%
Nippon India Arbitrage (G)	3.264%	4.047%	5.053%
Edelweiss Arbitrage Fund (G)	3.386%	4.170%	5.027%
Data Source: Morningstar

Government Securities Funds (Gilt Funds)

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Edelweiss G-Sec Fund (G)	2.523%	6.016%	7.321%
DSP G-Sec Fund (G)	2.455%	6.131%	6.697%
IDFC G-Sec Fund (G)	1.372%	5.899%	6.657%
Data Source: Morningstar

Corporate Bond Funds

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
ABSL Corporate Bond (G)	3.110%	6.863%	7.133%
L&T Triple Ace Bond (G)	2.296%	6.160%	6.929%
HDFC Corporate Bond (G)	2.483%	6.455%	6.887%
Data Source: Morningstar

Credit Risk Funds

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
ICICI Pru Credit Risk Fund (G)	4.860%	7.664%	7.288%
HDFC Credit Risk Fund (G)	3.549%	7.558%	6.900%
Baroda Credit Risk Fund (G)	12.571%	7.864%	6.558%
Data Source: Morningstar

Liquid Funds

Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Jul-22):

Name of Fund	1-Year Return	3-Year Return	5-Year Return
Quant Liquid Plan (G)	3.918%	4.659%	5.635%
IDBI Liquid Fund (G)	3.726%	4.207%	5.398%
Mahindra Manulife Liquid (G)	3.705%	4.111%	5.339%
Data Source: Morningstar

The month of July 2022 was a welcome change as the large cap and the mid cap indices gave strong and affirmative returns. If June was the month of macro chaos, then July 2022 was a month of relative stability. That was reflected in the equity markets. Of course, the risk of central banks staying hawkish is still there and commodity inflation will take much longer to go away. However, markets are convinced that the central banks are on the right track and the economic results should follow sooner rather than later.

The good news is that the equity and debt fund rankings have largely maintained consistency of top performers across categories. This makes the rankings a reliable barometer and decision point for investors. Just as equity funds gained from relatively stable macros and FPI flows, debt markets also benefited from bond yields topping out. The story would eventually be scripted by central banks, but for July; there has been some respite for equity and debt funds. That is the good news!

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Funds with the best risk adjusted returns

13 Feb , 2023
6:09 AM

In the world of mutual funds analysis, the most difficult task is to compare apples and oranges.

For instance, you cannot compare the returns of an equity fund with that of a debt fund or a commodity fund. Even within equities, it is hard to compare the returns of a large cap fund with a small cap fund or even a growth fund with a value fund. However, amidst this apples versus oranges debate, the one way to compare these diverse categories of funds is on the basis of risk-adjusted returns.

Using risk adjusted returns for mutual funds?

There are several different ways to use risk adjusted returns. One way is to use the Treynor ratio that uses Beta as a measure or risk. The other is to use the Sharpe approach, using standard deviation as a measure of risk. The third approach is to use the Fama based decomposition of returns to separate the fund manager driven returns. The problem with these approaches is their complexity and the dependence on assumptions.

To overcome these problems, we look at risk-adjusted returns from a different perspective. Firstly, instead of individual funds we look at fund categories. This overcomes variances in individual performance. Secondly, we use total risk since the assumption that unsystematic risk is diversified is rather fanciful. However, instead of the standard deviation we use the category range as a measure of risk.

How equity funds rank on risk adjusted returns?

Here we look at equity oriented funds across various categories based on 1 year returns; ranked on range-adjusted returns.

Morningstar Category	Category Average	Top Performer	Bottom Performer	Category Range	Range Adjusted Returns
Sector-Financial Services	7.78	9.84	1.48	8.36	0.9306
Contra	6.14	11.90	1.36	10.54	0.5825
Dividend Yield	3.65	8.31	-1.91	10.22	0.3571
Equity-Infrastructure	5.10	19.37	-1.97	21.34	0.2390
Value	3.21	9.51	-6.28	15.79	0.2033
Small-Cap	2.33	12.30	-5.68	17.98	0.1296
Mid-Cap	2.34	13.44	-7.14	20.58	0.1137
Multi-Cap	2.04	12.41	-6.45	18.86	0.1082
Large & Mid-Cap	0.82	21.46	-12.99	34.45	0.0238
Large-Cap	0.51	8.68	-12.96	21.64	0.0236
ELSS (Tax Savings)	0.20	10.40	-11.68	22.08	0.0091
Focused Fund	-1.14	15.34	-14.31	29.65	-0.0384
Flexi Cap	-1.33	11.96	-11.67	23.63	-0.0563
Equity-ESG	-1.71	9.43	-10.21	19.64	-0.0871
Sector-Healthcare	-6.31	0.03	-22.50	22.53	-0.2801
Sector-Technology	-9.86	-0.88	-18.44	17.56	-0.5615

Data Source: Morningstar

Here are some of the major takeaways. We have excluded FMCG outperformance since the category has only one fund and hence is not representative. The fund category that has done well on risk-adjusted returns is the financial services fund while the bottom performer is the Technology funds. That is hardly surprising.

Financials saw the best traction in last one year due to the positive loan spreads while IT bore the brunt of domestic salary costs, attrition, global weakness etc. Interestingly, contra and dividend yield were among the other top performing categories. The bottom performing categories over the last one year included healthcare and ESG funds too.

How debt funds rank on risk adjusted returns?

Here we look at debt oriented funds across various categories based on 1 year returns and have then ranked them on range adjusted returns.

Morningstar Category	Category Average	Top Performer	Bottom Performer	Category Range	Range Adjusted Returns
10yr Government Bond	2.41	3.05	0.82	2.23	1.0807
Long Duration	3.27	4.71	1.35	3.36	0.9732
Money Market	4.59	6.26	0.12	6.14	0.7476
Low Duration	4.34	6.04	-0.01	6.05	0.7174
Ultra-Short Duration	4.60	6.50	0.03	6.47	0.7110
Government Bond	2.91	5.48	-1.49	6.97	0.4175
Dynamic Bond	3.75	11.76	-	11.76	0.3189
Corporate Bond	3.07	5.34	-5.01	10.35	0.2966
Floating Rate	4.41	16.78	0.75	16.03	0.2751
Banking & PSU	3.30	10.73	-1.64	12.37	0.2668
Medium to Long Duration	3.31	11.30	-1.92	13.22	0.2504
Short Duration	4.41	27.76	-1.07	28.83	0.1530
Medium Duration	3.93	25.94	-1.87	27.81	0.1413

Data Source: Morningstar

Here are some major takeaways. We ignored the Credit risk fund underperformance since the category returns are skewed by low base returns on one fund. The fund category that has done well on risk-adjusted returns basis is the long duration funds and the 10-year government security funds. Normally, long duration funds tend to underperform in a rising interest scenario, but these are the ones to outperform in the last one year.

That is less about returns and more about the low risk entailed in these funds. Among the worst performers on a risk adjusted category were short duration and medium duration funds. Clearly, here again, the issue is not about returns, but about risk. The moral of the story is that in difficult market conditions and challenging macro environment, the outperformers have not been the return chasers but the risk managers.

How Miscellaneous funds rank on risk adjusted returns?

Having seen the risk-adjusted performance of pure equity and pure debt funds, we categorized all other funds into a residual category. This includes the hybrid funds, the passive funds and the commodity funds.

Morningstar Category	Category Average	Top Performer	Bottom Performer	Category Range	Range Adjusted Returns
Sector - Precious Metals	13.75	17.43	4.50	12.93	1.0634
Arbitrage Fund	4.48	6.14	1.35	4.79	0.9353
Dynamic Asset Allocation	3.99	14.40	-3.59	17.99	0.2218
Equity Savings	2.48	6.86	-5.31	12.17	0.2038
Conservative Allocation	3.82	21.80	-3.96	25.76	0.1483
Liquid	4.69	46.80	-	46.80	0.1002
Aggressive Allocation	1.29	7.74	-6.09	13.83	0.0933
Balanced Allocation	-1.25	-0.66	-1.89	1.23	-1.0163

Data Source: Morningstar

On risk adjusted terms, the top performer among miscellaneous funds are gold funds. Thanks to the geopolitical risk, gold has been a sought after asset in the last one year and that is evident from the risk-adjusted returns. Arbitrage funds have also been among the top performers, but that is more because the discretionary allocation funds have not done well.

In a sense, the volatile markets have been hardly conducive for any form of discretionary asset allocation. The highly popular Balance Advantage Funds (BAFs) have been among the worst performers in terms of risk-adjusted returns and that explains why investor interest in this category has been waning of late. For the last one year, passive gold ruled the roost.

Did change basis 5 years risk adjusted returns?

All the above risk-adjusted returns analysis have been done on 1-year returns and one can argue that they are vulnerable to short-term moves. Hence we undertook a similar analysis of 5-year risk-adjusted returns. Here are some of the key findings.

We start with equity funds risk-adjusted returns over 5 years on CAGR basis. Again we exclude FMCG as an outlier, so the top performing equity funds over 5 years on risk adjusted returns are ESG funds, technology funds and healthcare funds. Infrastructure, ELSS funds and small cap funds were among the bottom performers over 5 years.
How about debt funds over 5-year risk-adjusted returns? Even on a risk adjusted basis, 10-year government bond funds and long duration funds figured in the top-3 categories. The surprise inclusion is floating rate funds. At the bottom of the heap are credit risk funds, dynamic funds and medium duration funds; classic discretionary risks.
How did the other categories perform over 5 years. Once again, gold funds are on the top, with allocation funds doing a lot better over a 5 year period. Liquid funds are at the bottom, not due to low returns but due to high risk.

Risks adjusted analysis of fund categories always have an interesting story to tell. If not anything else, it underlines the importance of focusing more on asset allocation and less on fund selection.

July 2022 SIP flows prove that investors are really persisting

India Infoline News Service
09 Aug , 2022
7:51 AM

It may be recollected that in FY22, SIP flows had touched record levels of Rs124,566 crore and going by the early estimates for the first 4 months up to July, FY23 promises to be bigger and stronger in terms of SIP flows. Here is how.

Data Source: AMFI

As can be seen in the above chart, April 2022 saw a modest tapering of SIP flows to Rs11,863 crore but bounced back to Rs12,286 crore in the month of May 2022. It has been stable since. For June 2022, SIP flows were stable at Rs12,276 crore and at Rs12,140 crore in July 2022. Before the maze, a quick detour on why investors gravitate to SIPs!

A quick detour: Why are investors gravitating towards SIPs?

Before going into the nuances of SIP flows in July 2022, here is a quick detour to understand why Indian investors are gravitating towards SIPs or systematic investment plans.

a)      In a sense, the experience of 2020 has been a great teacher. Many investors tried to time the market and exited their SIPs around the pandemic. However, it was the investors who persisted with their SIPs, who were laughing all the way to the bank.

b)      There is an automatic fit between the income flows and SIP outflows. Nothing can be more disciplined than setting aside a small sum each month for your long term goals. Apart from the discipline, it is easy to understand and elegant to execute.

c)      It saves investors the hassles of timing the market. Most investors are wiser and realize that timing the market is a zero-sum game. A few bad days and all your efforts come to nought. The best way out is to adopt an agnostic approach to investing like SIPs.

d)      Lastly, the power of SIPs can be tested and verified with real data. If you run a SIP through 2 or 3 cycles, you invariably end up better off in a SIP. Timing the market has just given people the ulcers without any performance to show.

It is a combination of factors that has driven SIPs, but it must be said that the post pandemic period was a natural energizer to the concept of SIPs. Now, back to SIP data.

Reading through the SIP story of July 2022

FY23 may have just completed just 4 months, but we now have data for 6 years in terms of monthly and annual SIP flows. If you look at the underlying secular trend, it has been consistently growing, except for the brief lull in FY21, due to the pandemic. In the chart below, FY23 data is annualized, so not strictly comparable. However, with each passing month, the FY23 data is increasingly reflective of the full-year trend. One thing we noticed in FY22 was that the full year trend is captured quite effectively by the end of Q1.

Data Source: AMFI (FY23 data is annualized)

Since absolute numbers are misleading, the average monthly SIP ticket (AMST) can be an answer. This has been on a steady uptrend over last 6 years. AMST was Rs3,660 crore in FY17, Rs5,600 crore in FY18, Rs7,725 crore in FY19, Rs8,340 crore in FY20, Rs.8,007 crore in FY21 and Rs10,381 crore in FY22. In FY23, AMST as of July 2022 stands at Rs12,141 crore.

What are the key takeaways? Firstly, SIP flows have been robust and with NFOs reopening in July, we should wait for the double effect. Secondly, SIP flows have remained stable despite global and domestic headwinds like recession fears, China slowdown, inflation, OPM stress, and valuation concerns. Investors have learnt that in SIPs; only persistence pays.

SIP folio, SIP AUM and the spread story for July 2022

SIP flows in rupee terms can be enticing and simple, but at times misleading too. SIP flows do not capture the retail intensity of SIP flows or the retail distribution. That is captured by SIP folios and SIP AUM. Both, SIP folios and SIP AUM can be used as proxies for assessing retail spread, although SIP folios (MF accounts unique to an AMC) are more reliable.

How did the SIP folio growth story pan out in July 2022? The number of SIP folios increased from 554.89 lakhs in June 2022 to 561.94 lakhs in July 2022. That is monthly net accretion of 7.05 lakh SIP folios or 1.27%. The momentum of SIP folio accretion has been falling, but that can be attributed to uncertain market conditions and lethargy at higher levels. Even if you factor in multiple folios and non-equity folios, the folios growth still reflects a good picture of retail intensity. It may not be precise; but a fair median nevertheless!

What about SIP AUMs? The SIP AUM (assets under management) increased sharply from Rs551,189 crore in June 2022 to Rs609,296 crore in July 2022. This spike of 10.54% in SIP AUM in July 2022 can be almost entirely attributed to the sharp spike in equity indices. However, the retail SIP folio accretion in July has been better than June, so there is retail intensity that is still being built. In short, retail appetite for equity funds is robust. As of July 2022, SIP AUM accounted for one-third of overall retail Mutual Fund AUM.

SIP stoppage ratio spikes in FY23

SIP stoppage ratio is the ratio of SIP accounts discontinued in a specified period to the new SIP accounts opened. Lower this ratio, the better it is as it indicates higher retention of SIP investors. After all, you donâ€™t want your SIP investors exiting and going away. You really want to retain them. Some of the longer term trends are interesting. For FY20, the SIP stoppage ratio for the full year was 57.84% while for FY21 it was 60.88%.

The high SIP stoppage ratios in FY20 and FY21 can be attributed primarily to the COVID induced uncertainty. Cash flow emergencies also forced investors to redeem mutual funds. However, in FY22, the SIP stoppage ratio gravitated sharply lower to 41.74%. That is within the acceptable SIP stoppage ratio range of 40% to 45%. However, the first 4 months of FY23 have shown a sharp deterioration in SIP stoppage ratio.

Between April 2022 and July 2022, the SIP stoppage ratio stands at 55.53%. In June 2022, the SIP stoppage ratio had touched a high of 63.86%; almost back to the pandemic levels. In comparison, the SIP stoppage ratio has tapered to 59.53% in July 2022. However, for the first four months overall, the SIP stoppage ratio is above comfort zone at 55.53%.

The millions dollar question is where is the next big thrust to the SIP story going to come from? The last big surge in SIP accounts came from the millennials entering the equity and mutual fund market. That trend may still be around, but the momentum could be waning. Remember, there are 26 crore life insurance holders, 60 crore bank account holders and 90 crore mobile phone owners. That would be the next step in the pyramid to tap for SIPs.

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