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KOTAK TV 
22 Jun 2023
One of the most widely circulated myths with respect to some schemes of mutual funds is that the larger the asset under management for a particular mutual fund scheme, the lower the chances of it sustaining the performance above the market benchmarks. Such a myth has been revolving around Flexicap schemes. This blog tries to dispel the myth by illustrating the performance of Kotak FlexiCap Fund, one of the largest Flexicap funds in its category for the mutual fund industry.
Let’s first briefly understand what a Flexicap Fund is
It is an open-ended equity scheme dynamically investing across large-cap, mid-cap, and small-cap equity stocks. The fund allocates a minimum of 65% of the total assets in equity and equity-related instruments. A flexicap fund is considered one of the most convenient investment avenues for investors seeking diversification of their capital across various market capitalizations. The dynamic asset allocation of the fund also allows it to manage risks due to market volatility.
Key Characteristics of Kotak FlexiCap fund:
- The investment objective is to generate long-term capital appreciation by investing in a portfolio of predominantly equity and equity-related securities, generally focused on a few selected sectors across market capitalization.
- It takes equity exposure in sectors that are likely to do well over the medium to long term.
- There is no restriction on which type of sectors the scheme can take exposure to, and the portfolio will be generally diversified at the stock level across market capitalization.
- The scheme also tries to capture themes that are in flavour.
The story so far…
The average fund size of the Flexicap fund across the mutual fund industry has grown by leaps and bounds by nearly 66% to Rs 7,507 crore in the last five years. During the same period, the asset under management for Kotak FlexiCap Fund has increased to Rs 38,305 crore, making it the largest actively managed fund in the industry.
In fact, the number of Flexicap schemes has also increased over two-fold to 35 from March 2010 to May 2023. The same is illustrated in the tables below.
Is the size of the Kotak FlexiCap Fund a constraint?
Launched in January 2013, Kotak FlexiCap Fund has delivered an alpha of nearly 3% in the last one year.* Alpha is the difference between the scheme return and the benchmark return. Also, the scheme’s growth has consistently matched the equity market capitalization in the country. This can be observed from the table below; the scheme’s share in total market capitalization of the country was 0.13% in March 2018, and the same has not changed significantly five years down the line at 0.14% of the market cap.
Meanwhile, on daily rolling returns basis, Kotak FlexiCap Fund has delivered an average return of 16.6 % on a 10-year investment, 15.5 % on a 7-year investment, and 15% on a 5-year investment. These figures are above the returns generated by the benchmark index Nifty 500 TRI and reflect Kotak FlexiCap Fund’s ability to create long-term value for investors.
*Source: ICRA.
Summing up: The above graph illustrates that the performance of Flexicap funds may not necessarily be constrained by the large volume of its assets under management. In fact, investors should focus more on the skill set and experience of fund managers, the credibility of the mutual fund house and the past performances of the scheme to make informed investment decisions.
