Mutual fund managers play it safe, allocate maximum to large cap stocks

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Mutual fund managers are playing it safe with the size of funds increasing with time. Data from Association of Mutual Funds in India shows that most mutual fund managers are banking on safer bluechip stocks to tide over volatile markets. The trend of allocating more to large cap stocks can be seen in the portfolios of flexi cap funds, multi cap funds and even in some large & mid cap funds. Analysts believe that safer bets are becoming essential because the fund sizes are increasing.

The trend that emerges from the inflow data reveals that mutual fund investors as well as managers want to play it safe. Most inflows have come to flexi cap funds, followed by multi cap funds, large cap funds and so on. The market volatility has unnerved the investors and most of the money is flowing into the stable large cap stocks. Flexi cap funds are seeing large cap allocation as high as 85% in some cases.

“Investors are playing it safe. Fund calls are also aligned to the flexi cap, large cap categories. Market volatility can be the main cause for this and also midcap stocks haven’t done very well in the near term. Hence, most money is going to the ‘safer categories’. I stick to a very mathematical allocation. Markets don’t matter. I follow a rule, higher the near term category performance, lower my allocation. The market, however, doesn’t always follow this rule,” says Swarup Mohanty, CEO, Mirae Asset Mutual Fund.

Large Cap funds have seen a total inflow worth Rs 14,247 crore and large & mid cap funds saw inflows worth Rs 14,500 crore since January this year. These inflows are in line with the safer investment strategy followed by many investors in the current volatile market. Large & mId cap funds are allocating an average 60:40 towards large and mid cap stocks.

In 2022, so far, the most of the money has gone to flexi cap funds. The category has seen a total inflow of Rs 17,491 crore since January, 2022. Fund managers say that the category has been the favourite for its flexible nature and freedom to allocate to all market caps. However, the flexi cap funds have a high allocation to the large cap stocks these days. The top 5 schemes in the category have 70-85% allocation to large cap stocks.

Scheme Large Cap allocation Mid Cap allocation Small Cap allocation
HDFC Flexi Cap Fund 82.8% 14.09% 3.11%
ICICI Prudential Flexicap Fund 75.82% 20.06% 4.12%
Quant Flexi Cap Fund 69.37% 26.58% 4.05%
IDBI Flexi Cap Fund 79.62% 15.64% 4.74%
Franklin India Flexi Cap Fund 78.51% 14.71% 6.78%

Data: Value Research

Apart from the flexi cap category, multi cap funds are also among the highest grossers so far in this year. The multi cap category has garnered a total inflow of Rs 15,271 crore. The category is mandated to invest a minimum of 25% in the small, mid and large cap category by Sebi. This makes it riskier than large cap funds, flexi cap funds, and large & mid cap funds. However, a look at the fund portfolios in this category shows that fund managers are taking cautious bets in this category too. Most of the schemes have a higher allocation to large cap stocks.

Scheme Large Cap allocation Mid Cap allocation Small Cap allocation
Nippon India Multi Cap Fund 43.96% 32.41% 23.64%
Quant Active Fund 47.1% 33.34% 19.53%
Sundaram Multi Cap Fund 47.71% 37% 15.29%
Mahindra Manulife Multi Cap Badhat Yojana 45.86% 36.74% 17.4%
ICICI Prudential Multicap Fund 42.04% 38.9% 19.06%

Data: Value Research

“Apart from tiding over volatility, the higher allocation to large cap stocks is because the current opportunity set lies more in large cap companies. What we have seen after covid is that the larger companies are getting larger. The risk-reward, earnings etc have been better with large cap companies than the mid and small cap companies. Hence in a volatile market, the opportunities lie within large caps. Another reason is the size of the funds. Big inflows are flowing into flexi cap and multi cap funds and the opportunities in mid and small cap segments are limited, hence the number of bigger bets are within the large cap segment,” says Chirag Mehta, CIO- Quantum AMC.

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