Buy-and-hold: Mutual Fund schemes that churn the least
A Moneycontrol Personal Finance analysis of diversified equity schemes shows that small-cap funds typically have the least turnover ratios. To get the best out of small-cap stock picks, it is widely held that these stocks must be held through their life cycles
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.
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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.
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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%
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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%
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%
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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%
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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%
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%
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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%
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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%
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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
