While buying mutual funds, the aim of investors is to see their wealth grow with time. Although mutual fund returns differ based on the category of funds they choose, one of the fair parameters to judge a fund’s performance is to compare its returns against the benchmark index.
If the fund consistently beats the benchmark, it is seen as a good performer. On the other hand, if it fails to do so – it is seen to be lagging.
We evaluate here the performance of large cap mutual funds against their corresponding benchmarks.
Let us first understand what exactly are large cap funds:
Large cap mutual funds
Large cap mutual funds, as their name implies, invest a significant portion of their corpus in organisations with sizable market capitalizations that have developed a reputation and a base of trust through time. These businesses are often market leaders in their respective segments and are included in large cap indices like the Nifty 50 or Nifty Next 50. They also typically have good corporate governance procedures and a proven track record of profitability.
Large size funds are the best option if you are investing with a long-term perspective and want stable returns while reducing some risk because the likelihood of something going wrong is lower. Mutual funds with a large market cap can produce respectable returns and slowly increase your wealth.
What is a benchmark in mutual funds?
A benchmark is a baseline against which the efficiency of a mutual fund scheme is evaluated. It is a rough estimate of the returns that an investor's investment should have generated.
Benchmark indices are chosen by fund houses based on market capitalization and the sectoral or thematic strategies of the funds. Your mutual fund schemes should aim to outperform the benchmark's return; if they do, their performance will be regarded as successful.
In India, a benchmark index declaration is required for all forms of investment options. Sebi is in charge of enforcing this legislation on the financial market.
Why is benchmark important?
A benchmark index is important because it offers informative and a useful standard for evaluating mutual fund performance. Due to the fact that every fund manager strives to beat the fund's benchmark index over the long term, this enables investors to evaluate a fund manager's investment skills.
It is claimed that a mutual fund scheme has outperformed if it generates returns greater than the benchmark, and vice versa. On the other hand, your fund can still be considered to have beaten the benchmark if the benchmark index declines over a period of time but your fund's NAV declines less (in percentage terms) over the same period.
Here is the list of eight funds that managed to beat their benchmark indices in the past five years
|Name of Schemes||5- Year Returns (%)||Benchmark|
|Canara Robeco Bluechip Equity Fund||13.98||11.65|
|Axis Bluechip Fund||13.50||11.65|
|Mirae Asset Large Cap Fund||12.07||11.47|
|Sundaram Large Cap Fund||11.88||11.47|
|ICICI Prudential Bluechip Fund||11.87||11.47|
|Edelweiss Large Cap Fund||11.82||11.47|
|Kotak Bluechip Fund||11.81||11.47|
|UTI Mastershare Fund||11.78||11.65|
(Source - AMFI data, July 6, 2022)
As we can see in the chart above, Canara Robeco Bluechip Equity Fund was ahead of the benchmark index by over two percent, Axis Bluechip Fund outpaced its benchmark index by more than one percent.
Other mutual fund schemes which have beaten the benchmark indices are Mirae Asset Large Cap Fund, Sundaram Large Cap Fund, ICICI Prudential Bluechip Fund, Edelweiss Large Cap Fund, Kotak Bluechip Fund and UTI Mastershare Fund.
Disclaimer: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment decision.