Investors who want to invest in an NFO must consider investing only if it offers a unique investment proposition i.e. distinct from that of existing funds. In other words, the NFO should add value to investors' portfolios.
Unfortunately, not all investors see it that way. Many of them, under the not-so-gentle influence of their agents/distributors take to NFOs as if they were the answers to all their prayers. We put one such NFO - Magnum Multicap Fund under the scanner to determine whether it has justified the investor's confidence.
The investment proposition offered by the NFO
Magnum Multicap Fund, an offering from SBI Mutual Fund is a flexicap fund. MMF was launched in August 2005 and was widely subscribed by investors. The fund is mandated to invest in stocks of companies that provide long-term growth opportunity from across market capitalisations (large, mid and small caps). The fund has higher allocation to large cap stocks i.e. atleast 50% of the corpus, meaning that it is a pre-dominantly large cap fund.
Our view on the NFO
At Personalfn, our view on the NFO at the time of the launch was that although existing funds from SBI Mutual Fund had proved their mettle in the mid cap segment, the fund house's performance in identifying large caps did not inspire the same level of confidence.
Read what we said about Magnum Multicap Fund at the time of the NFO
We advised our clients to give MMF a miss and instead invest in flexicap funds with proven track records.
Given that MMF has been in existence for over two years now, we thought now would be a good time to evaluate its performance so far and determine whether our advice then (to give the NFO a miss) has worked for our clients.
The face-off
| NAV (Rs) |
3-Mth (%) |
6-Mth (%) |
1-Yr (%) |
Since Incep. (%) |
Std. Dev. (%) |
Sharpe Ratio (%) | |
| Tata Equity Opportunities (G) | 95.11 | 30.2 | 44.9 | 71.2 | 16.3 | 8.00 | 0.40 |
| DSP ML Opportunities (G) | 83.42 | 23.1 | 39.0 | 54.9 | 34.4 | 6.59 | 0.44 |
| Franklin India Opportunities (G) | 37.57 | 19.7 | 33.8 | 49.5 | 19.3 | 8.47 | 0.38 |
| Magnum Multicap (G) | 21.56 | 17.8 | 34.8 | 41.6 | 39.1 | 7.17 | 0.35 |
| ICICI Pru. Dynamic (G) | 87.92 | 16.9 | 25.6 | 40.2 | 52.9 | 6.63 | 0.43 |
| BSE 100 | 17.8 | 37.9 | 49.3 |
MMF is a flexicap fund with a mandate to invest atleast 50 per cent of its assets in large cap stocks. Its investment pattern is quite different as compared to other flexi cap funds. This is because historically, the fund has a higher allocation in large cap stocks i.e. usually between 65-85 per cent of its asset. MMF's investment allocation was the basis for the selection of peers.
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MMF's performance on the net asset value appreciation front has been modest at best. Over the last 12 months, its NAV has appreciated by 41.6 per cent; it trails most of the funds in its peers group by a significant margin. Also, the fund has failed to match its benchmark index i.e. BSE 100 (49.3 per cent) over this time frame. Since inception, MMF has clocked a growth of 39.1 per cent CAGR (compounded annualised growth rate).
Volatility
Standard Deviation is a measure of the volatility in a mutual fund's performance; a lower SD denotes lower risk. MMF emerges as an average performer on the volatility control front with a SD of 7.17 per cent; Franklin India Opportunities (8.47 per cent) is the most volatile fund. DSP ML Opportunities (6.59 per cent) is the top performer on the volatility control front.
Risk-adjusted return
Sharpe Ratio is a measure of the returns delivered by the fund per unit of risk borne. Among peers, MMF (Sharpe Ratio 0.35 per cent) is the most dismal performer on the risk-adjusted returns front, while DSP ML Opportunities (0.44 per cent) pitched in the best performance on this parameter.
As can be seen in the graph, Rs 100 invested in MMF on inception would be worth approximately Rs 221.3 at present, while an investment in the benchmark index i.e. BSE 100 would have yielded Rs 259.7.
Then again
What should investors do? At Personalfn, we have always maintained that a 'one size fits all' approach doesn't work while investing. An investment avenue that is apt for one investor could be grossly unsuitable for another. Investors would do well to consult their investment advisors/financial planners to determine the suitability of MMF in their portfolios.
It must be mentioned here, that these are early days for the fund to be evaluated. Ideally equity-oriented funds should be evaluated over a longer time frame (at least 3-5 Yrs). The possibility of MMF delivering an impressive showing over the long-term cannot be ruled out. However its performance so far does not inspire confidence.
Should investors consider investing in the fund or liquidating their existing investments instead? Well, that would depend on the investor's risk appetite, investment objective and existing portfolio, among a host of other factors.
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