Scheme selection key as mutual fund returns vary widely across categories

In the flexi-cap category, the largest by assets under management (AUM), the top-performing scheme, Quant Flexi Cap Fund, returned 12.29% over the past year, while the worst performer, Samco Flexi Cap Fund, lost 5.75%.

The divergence was even wider in the small-cap category, where Trust Small Cap Fund gained 27.39%, while Tata Small Cap Fund fell 5.08%.

Wealth managers said the divergence reflects a market that has rewarded stock-specific bets, while traditional sectors such as banks and information technology have lagged. Segments such as defence, power and capital markets, on the other hand, have outperformed.

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“The markets have rewarded stock pickers in the last year, with individual stocks in new age sectors getting bigger,” says Sandeep Bagla, chief executive officer, Trust Mutual Fund. “Portfolios with allocation to companies in defence, data centre, premium consumption and financialisation of savings did well, while those in private banks, traditional IT lagged.”

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specific bets work Sectors such as banks & IT lagged; defence, power & capital markets outperformed: wealth managers

Selecting the right fund has been a challenge for investors as it goes beyond shortlisting investments based on past returns alone.
“Investors need to understand the style of investing, track record of the investment team in terms of which cycle they are able to play well, portfolio construct and suitability, analyst team strength and coverage universe of stocks,” says Nirav Karkera, head of research at W by Groww.
Some distributors said the gap tends to narrow over longer periods. “Fund managers use strategies that work out over a period of time. Investors who go through a full cycle will see return differentials between schemes narrow over a 3-5 year period,” explains S Shankar, CFP, Credo Capital, a mutual fund distributor.

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