Are large cap funds losing shine?

The success of mutual fund schemes have now become more of a relative performance. Every investor's eyes seem focused on a comparison that has become as much a part of our lives as the daily fluctuations in the stock market. When there was a bull market, most fund investors hardly felt much about the relative performance. It seems that only after the recent downfall, they recognize not what was, but what might have been.

This is especially true for the large-cap dedicated funds that seems to have underperforming its benchmark in recent periods. The average returns given by the funds has been lower than the frontline indices for all the period less than or equal to three years. For 5-year and 10-year period they have outperformed the benchmark.

Even in terms of percentage of funds that have outperformed their benchmark is very low in recent period, however, increases with period. For example in the last one month only 14 per cent of the funds were able to beat their benchmark, however, for the 10-year period it increases to 71 per cent.

One of the reasons for such underperformance may be due to the recent fall in the market and certain regulatory changes that have been introduced a couple of years back. According to these changes, large-cap funds need to have minimum 80 per cent of their corpus invested in large-cap stocks. Earlier there was no standard definition for market capitalisation and their holdings in a fund. Therefore, many a times large-cap dedicated funds used to hold substantial portion of their corpus in mid-cap and small-cap stocks that would help them to outperform the large-cap indices that were their benchmarks.

Hence, if you want to invest in large-cap funds, you can invest through large-cap index funds or ETFs.