Choosing The Right Large-Cap Funds

T Srikanth Bhagavat
Managing Director, Hexagon Capital Advisors, www.hexagononline.com

I had invested Rs 80000 in JM Equity Fund two years ago, but have now lost some of my principal. Should I wait for the fund to do well or choose another Large-Cap fund?
- Abhijeet Desai

Over the last two years, JM Equity Fund has generated negative returns of 6.87 per cent (on an absolute basis), while the Sensex has fallen by less than a per cent during the same period (as on March 25, 2013). On a compounded annualised basis, this Large-Cap fund generated returns of -3.49 per cent while the Sensex has generated a CAGR of -0.36 per cent.

You should consider exiting JM Equity, as its long-run track record has been disappointing. Since its inception in 1995, the fund has under-performed its benchmark (the Sensex), as shown in the chart. During the last two years, the fund has also under-performed its category, as some Large-Cap funds have generated returns close to 4 per cent (CAGR).

As your investment is more than a year old, you will not incur any exit load if you redeem your investment in JM Equity Fund.

The funds shown in the table here have generated significantly higher long-run returns than JM Equity, and have also outperformed the Sensex. Additionally, the table shows that JM Equity Fund is relatively more volatile, as the fund has a higher standard deviation than its Large-Cap counterparts (on a long-run basis).

You could thus consider redeeming your investment in JM Equity redeeming your investment in JM Equity and switching to other Large-Cap funds such as those shown in the table. These funds have consistently generated high risk adjusted returns and will help you maximise returns and simultaneously limit risk. In the long run, these top-performing Large-Cap funds should add value to your portfolio.