Merely watching a TV commercial that propagates investment in mutual fund is not enough before you decide to invest in a mutual fund. One should understand different categories under which numerous mutual fund schemes are run, and compare their returns in past one year, and the quarter gone by.
Before we move further, it is vital to know that the composition of top five categories of mutual funds remained unchanged in Q4 of fiscal 22, accounting for 47 percent of total folios. The largest number of folios are held in ELSS funds (1.4 crore), followed by large cap (1.2), sectoral/thematic (1.2), flexi cap (1.2) and other ETFs (1.1), as per ICRA Analytics data.
Small cap posted highest returns
Small cap mutual fund gave a return of 37.19 percent in the past one year. At the same time, mid cap funds gave a return of 24.46 percent and large cap funds posted a return of 17.76 percent, as per ICRA Analytics MF Screener for quarter ended March 2022. Flexi cap funds, on the other hand, gave a return of 21.54 percent.
However, when it comes to consistency, small caps are not as stable as their larger peers.
Upon comparing the 3-year and 5-year returns of mid cap and large cap mutual funds, we can see that the large cap funds gave a return of 14.37 percent and 12.37 percent for three and five years, respectively.
On the other hand, mid cap funds posted a return of 20.11 percent and 14.09 percent, respectively. At the same time, small caps gave a return of 25.33 percent and 15.76 percent, respectively.
The flexi cap funds, at the same time, gave muted returns in past three and five years by posting a return of 16.28 percent and 13.41 percent, respectively.
Returns given by mutual funds across market cap spectrum
(Source: ICRA analytics)
It is vital to note that the short term returns of March quarter of all mutual fund categories, across the market cap spectrum, were in negative.
Flexi cap funds posted -2.30 percent return in the march quarter. The mid cap funds gave -2.71 percent whereas small cap funds gave -3.57 percent.
However, it is noteworthy that the decline in large cap funds was the lowest i.e., 1.68 percent.
As financial experts often argue that large cap funds are among the most stable fund categories and their fall during volatile market is lowest as compared to other categories.