Buy-and-hold: Mutual Fund schemes that churn the least

How frequently a fund manager churns his portfolio is measured by a scheme’s Turnover Ratio (TR). A higher TR implies more trading costs borne by the scheme, thereby increasing the expense ratio that, in turn, impacting the returns. But, a higher TR is not automatically bad. If the fund manager’s calls are mostly correct, a high TR is no impediment to good performance. On the other hand, a high TR could also mean that the fund manager trades frequently.

A lower portfolio turnover ratio is also an indication of the buy-and-hold strategy. A Moneycontrol Personal Finance compilation of TR (average of last 3 years) of major equity diversified categories has thrown up an interesting result. Of the top 10 schemes, six are from the smallcap category. Vinit Sambre, head of equities, DSP Mutual Fund explains that smallcaps in nature take a longer time to produce results hence smallcap fund managers prefer the buy-and-hold strategy. Secondly, the liquidity is low. So, the ability to churn is low for smallcap funds, he adds.
Here are the top ten equity diversified schemes with the lowest Turnover Ratio (average of last 3 years). Only major equity diversified categories such as midcap, smallcap, flexicap, multicap and focused funds are considered for the study. Source: ACEMF.

Top 10: Franklin India Smaller Cos Fund
Average Turnover Ratio (over the last 3 years): 17%
Category: Small Cap
Fund manager: R Janakiraman and Akhil Kalluri
Date of launch: 13-Jan-2006
5-year return (Point-to-point) (CAGR): 16%

Top 9: DSP Small Cap Fund
Average Turnover Ratio (over the last 3 years): 16%
Category: Small Cap
Fund manager: Vinit Sambre, Abhishek Ghosh and Resham Jain
Date of launch: 14-Jun-2007
5-year return (Point-to-point) (CAGR): 19%

Top 8: Axis Small Cap Fund
Average Turnover Ratio (over the last 3 years): 15%
Category: Small Cap
Fund manager: Shreyash Devalkar and Mayank Hyanki
Date of launch: 29-Nov-2013
5-year return (Point-to-point) (CAGR): 22%

Also see: MC30 scheme review: Why PGIM India Midcap Opportunities Fund is a long-term wealth creator

Top 7: HDFC Mid-Cap Opportunities Fund
Average Turnover Ratio (over the last 3 years): 14%
Category: Mid Cap
Fund manager: Chirag Setalvad
Date of launch: 25-Jun-2007
5-year return (Point-to-point) (CAGR): 17%

Top 6: Kotak Flexicap Fund
Average Turnover Ratio (over the last 3 years): 13%
Category: Flexicap
Fund manager: Harsha Upadhyaya
Date of launch: 11-Sep-2009
5-year return (Point-to-point) (CAGR): 11%

Top 5: Kotak Small Cap Fund
Average Turnover Ratio (over the last 3 years): 12%
Category: Small Cap
Fund manager: Pankaj Tibrewal
Date of launch: 24-Feb-2005
5-year return (Point-to-point) (CAGR): 21%

Also see: 10 most popular large-cap stocks among PMS to withstand volatility

Top 4: UTI Flexi Cap Fund
Average Turnover Ratio (over the last 3 years): 10%
Category: Flexicap
Fund manager: Ajay Tyagi
Date of launch: 18-May-1992
5-year return (Point-to-point) (CAGR): 11%

Top 3: HDFC Small Cap Fund
Average Turnover Ratio (over the last 3 years): 9%
Category: Small Cap
Fund manager: Chirag Setalvad
Date of launch: 03-Apr-2008
5-year return (Point-to-point) (CAGR): 18%

Top 2: Kotak Emerging Equity Fund
Average Turn Over Ratio (over the last 3 years): 8%
Category: Mid Cap
Fund manager: Pankaj Tibrewal
Date of launch: 30-Mar-2007
5-year return (Point-to-point) (CAGR): 17%

Top 1: UTI Small Cap Fund
Average Turn Over Ratio (over the last 3 years): 9%
Category: Small Cap Fund
Fund manager: Ankit Agarwal
Date of launch: 22-Dec-2020
5-year return (Point-to-point) (CAGR): NA

Read here: Hot small-cap pharma and healthcare stocks that MFs hold currently