The schemes that moved out of MC30 2024 and why

Intro exit

The annual edition of the MC30 - Moneycontrol’s curated basket of 30 investment-worthy mutual fund schemes - is here. Although the intent of the MC30 is to churn as little as possible, it’s inevitable that some schemes move out.

This could happen because the performance of the scheme has been consistently poor compared with its peers and/or its benchmark index. This could result in a fall of its ranking and rating, as per our internal Moneycontrol Mutual Fund rankings, to either a 3-star or worse, 2-star rating. Or there could have been a fund manager change.  Or sometimes, there may have been better alternatives outside the MC30.

Also see: The methodology behind the curated basket of mutual fund schemes

If a scheme moves out of the MC30, it doesn’t mean you must immediately sell your units. If the scheme exits due to poor performance, it’s best to stop your systematic investment plans right away. You could exit the scheme gradually to minimise the impact of exit loads and capital gains tax.

But if a scheme exits for reasons other than performance, you could wait for a couple of more quarters to check its performance and then decide what to do with them.

For now, let’s meet the schemes that go out of the MC30 this year.

Also read: Best mutual funds: 86% of actively-managed schemes outperformed benchmarks in MC30’s 2023 run

Kotak Emerging Equity Fund

Kotak Emerging Equity Fund (KEEF) slipped in its performance over the past year and half. Among the 10 largest mid-cap funds, KEEF was among the poorest of performers with a return of about 32 percent, as opposed to 40 percent by this lot.

The fund management call did not go with the momentum-induced broad-based rally.

“We always look at growth at a reasonable valuation. We are very conservative in terms of our portfolio construction in the mid- and small- cap space. The quality businesses we have in the portfolio go through short-term downcycles that led to underperformance in the recent quarters,” said Harsha Upadhyaya, CIO-Equity at Kotak AMC.

The fund’s expectations on themes such as consumption and some domestic-oriented businesses didn’t quite work out over the past 12-15 months.

KEEF has been a solid performer till date. As per the recent stress test results, the scheme shows less volatility (11.84) than its benchmark index (14.67), which is a good sign. But its portfolio is overvalued (37.26 times) as compared to its benchmark index (26.96 times).

With the exit of former fund manager Pankaj Tibrewal in November 2023, it has some large shoes to fill. Kotak Mutual’s equity team is in good hands, though, led by Upadhyaya and CEO Nilesh Shah. Therefore, existing investors can continue for some more time to see the after-effects of the transition.

UTI Flexi Cap Fund

UTI Flexi Cap Fund (UFF) exits the MC30 on the back of a consistent slippage in performance. The scheme's growth and quality-focused investment style failed to outperform the value- and momentum-driven markets.

“The last couple of years have been extremely punitive for quality style of investing,” said Ajay Tyagi, head of equities at UTI AMC. “We typically buy companies which have tailwinds for structural growth rather than enjoying cyclical growth. And we tend to hold on to these companies for the very long term, rather than churning frequently. Value-oriented stocks were doing very well from the segments like PSU, energy and commodities.”

The fund manager's predictions for sectors including private sector banks, consumer staples, and consumer durables have not delivered desired results. We believe that there are better alternatives than UFF in the Flexi-cap space.

Also see: MC30: How investors should use the ratings

DSP Equity & Bond Fund

DSP Equity & Bond Fund (DEB) is an aggressive hybrid fund that invests 69 percent in equity and 26 percent in debt.

It moves out of the MC30 due to its average performance. The scheme’s rating in our internal annual Moneycontrol Mutual Fund Ranking and Ratings has been average for long and failed to show improvement. It’s time to move out of the scheme.

DEB invests primarily in good quality businesses with growth at a reasonable price. Its higher allocation towards the consumption side of the economy took a beating since the onset of COVID in 2020.

Also, its growth style of investing took a backseat when value funds made a comeback. Peer schemes that bet on value stocks and themes like public sector companies and infrastructure outperformed the scheme in the past two years.

The scheme did make a comeback in 2023. But it moves out of the MC30 because there are more screaming buys among peers.

Also see: Top mutual funds: 3 new schemes that enter Moneycontrol’s sparkling list of investment-worthy funds; MC30