Do You Know That Less Popular Funds Can Give You Good Returns?

Sep 09, 2020

With a wide array of mutual funds available in the market, it can become difficult to choose the right scheme to invest in. So when it comes to selecting a mutual fund for investment, investors often tend to select a fund based on popularity.

As a result of the popularity, money starts flowing into these schemes and the fund size grows substantially. Out of the total number of 186 diversified equity schemes (excluding ELSS and ETFs), the top 15 schemes in terms of corpus size account for around 44% of the total assets.

While these popular funds may continue to do well in future, we cannot ignore certain schemes just because it is less popular.

Most small-sized funds (having a corpus of less than Rs 3,000 crore) remain undiscovered despite a remarkable performance in the past because distributors and brokers generally recommend popular large-sized funds. DIY investors too prefer to invest in popular funds to save themselves from the hassles of comparing different schemes on various parameters.

In fact, we have found that  small-sized funds or  schemes coming from a small fund house have the capability to generate big gains for its investors. Unfortunately, these funds remain undiscovered under the shadow of popular large-sized funds.

Believe it or not, there are various instances where some lesser known funds have generated double-digit returns over the long term without taking undue risk. These funds have the potential to generate equivalent or better performance than some of the well-known schemes.

Table: Some of the less popular funds that have rewarded investors with superior risk-adjusted returns

Scheme Name  Corpus (in crore) Absolute (%)  CAGR (%) 
1 Year  2 Years  3 Years  5 Years  7 Years 
Invesco India Growth Opp Fund  2,703 5.10  -0.34  5.22  10.68  16.01 
Sundaram Large and Mid Cap Fund  1,196 4.02  -1.68  4.83  10.02  16.18 
Canara Rob Equity Diver Fund  2,245 14.42  4.77  7.57  10.88  14.14 
Invesco India Midcap Fund  875 15.79  2.47  6.36  11.39  21.68 
BNP Paribas Large Cap Fund  830 7.09  4.64  5.57  9.19  14.33 
Canara Rob Bluechip Equity Fund  617 15.18  6.29  8.92  11.99  14.29 
For illustrative purpose only
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on September 08, 2020
(Source: ACE MF)

The small size of the portfolio gives the fund manager the scope to actively manage the portfolio and maintain high liquidity. This enables them to time the entry and exit more efficiently, in line with changing market conditions. Large-sized funds, on the other hand, may face liquidity constraints, especially if they have higher exposure to mid cap and small cap stocks.

In the current volatile and uncertain market environment, where even some of the popular schemes, particularly in the large cap category, have underperformed the benchmark, some lesser-known funds have proved their mettle by delivering superior risk-adjusted returns.

However not all less popular funds are worthy of investment. If a scheme has very low corpus of say Rs 500 crore or less despite being in existence for many years, or if it has generated a one-off superior performance, it may be better to ignore it. Similarly, you cannot just chase a popular fund because there is no certainty that the fund will continue to do well in future as well; past performance only shows the potential the fund holds. So while the popularity should not be given a lot of weightage while selecting a fund, it should not be ignored either.

(Image source: photo created by jcomp -

​When you select funds, focus on schemes that have consistently performed well as compared to the benchmark and most category peers.

Many funds struggle to perform well when the markets turn volatile. This makes it important to choose funds that perform well across market phases and cycles and reward investors with superior risk-adjusted returns,

The qualitative factors are as equally important as quantitative ones to judge the growth potential and consistency of the fund. Thus, you need to analyse the portfolio characteristics, qualification, skills, and experience of the fund manager, the investment systems and processes followed at the fund house, and the efficiency with which the fund house is managing your hard-earned money.

More importantly, ensure that the schemes you choose align with your financial goals, risk profile, and investment horizon.

[Read: Make Mindful Choices of Mutual Fund investments in Current times]

There are many funds that are well-known and have become popular over time making it to the portfolios of mutual fund investors.

However, there are also some hidden gems that most investors have probably never heard of, but still carry commendable management qualities and portfolio features, and thus offer superior growth potential to become category outperformers in the long run.

At PersonalFN, we have identified such 5 undiscovered funds with high growth potential that have still not caught the attention of investors.

Although they are small in size, they have superior stock picking abilities and potential to deliver superior risk-adjusted returns in the long run. As per our research, once these small sized fund get 'discovered' and start attracting more investors, they may have already created significant wealth for its investors. The best way to benefit from them is to be able to identify and invest in them early on.

If you want to get access to these five hidden gems and set out on to securing your dream retirement, meeting financial obligations and live the life you always wanted... subscribe now!

Warm Regards,
Divya Grover
Research Analyst

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