However, the large cap orientation of the fund still offers it some flexibility to accept more investors. Notably, Kotak Standard Multicap Fund has now become the flagship fund of Kotak Mutual Fund, while the second largest scheme in its stable – Kotak Emerging Equity Scheme has a corpus of just around Rs 3,200 crore, followed by Kotak Equity Opportunities Fund at Rs 2,500 crore. It will be interesting to see, if Kotak Standard Multicap Fund can sustain its extra-ordinary performance or will the huge size play a spoil sport for its investors.  

With an objective of generating long-term capital appreciation from a portfolio of predominantly equity & equity related securities, Kotak Standard Multicap Fund generally focuses on a few selected sectors with its portfolio being diversified across market capitalization. The new mandate adopted by the fund offers it the complete flexibility to stick to its original mandate of focusing on selected sectors as well as diversifying the portfolio across market caps, without any restriction.

Historically, the fund has held a large cap bias portfolio that has been in the range of 70% to 85% of its assets, and it is expected to continue with similar allocation in future as well. Although classified as a multicap fund, the large cap bias followed by Kotak Standard Multicap Fund is contrary to its classification and far from calling it a true to its style multicap fund.

Fund Facts – Kotak Standard Multicap Fund

Category	Multi Cap Fund	Style	Blend
Type	Open ended scheme	Market Cap Bias	Multi Cap Fund
Launch Date	17-Sep-2009	SI Return (CAGR)	15.02%
Corpus (Cr)	Rs 19,827	Min./Add. Inv.	Rs 5,000 / Rs 1,000
Expense Ratio (Dir/Reg)	1.17% / 2.14%	Exit Load	1%

Portfolio Data as on June 30, 2018.
SI Return as on July 31, 2018.
(Source: ACE MF)

Growth Of Rs 10,000, If Invested In Kotak Standard Multicap Fund 5 Years Ago

Kotak Standard Multicap Fund: Year-on-Year Performance

Kotak Standard Multicap Fund: Performance Vis-à-vis Category Peers

Scheme Name	Corpus (Rs Cr)	1 Year (%)	2 Year (%)	3 Year (%)	5 Year (%)	Std Dev	Sharpe
Motilal Oswal Multicap 35 Fund	13,016	24.43	24.65	20.33	--	14.34	0.14
SBI Magnum Multicap Fund	5,413	21.04	20.59	16.24	22.22	13.16	0.13
Principal Multi Cap Growth Fund	661	26.22	25.27	16.20	22.32	16.63	0.12
Aditya Birla SL Equity Fund	9,351	18.82	23.19	16.16	23.27	13.67	0.13
Invesco India Multicap Fund	524	23.45	21.31	15.68	26.32	15.28	0.10
Kotak Standard Multicap Fund	19,827	19.70	21.36	15.54	22.19	12.79	0.15
Mirae Asset India Equity Fund	7,945	22.10	21.79	15.10	22.06	13.41	0.14
BNP Paribas Multi Cap Fund	854	22.57	20.20	14.45	20.48	14.40	0.06
Parag Parikh Long Term Equity Fund	1,107	21.25	17.91	13.97	20.17	10.09	0.19
Edelweiss Multi-Cap Fund	87	25.81	21.38	13.42	--	14.95	0.11
ICICI Pru Multicap Fund	2,753	14.76	17.90	13.03	19.78	12.37	0.11
Franklin India Equity Fund	11,470	16.33	16.05	12.58	20.11	11.78	0.07
DSPBR Equity Fund	2,503	19.56	19.94	12.41	18.78	15.16	0.08
HSBC Multi Cap Equity Fund	637	19.29	19.54	12.21	20.45	14.88	0.08
IDFC Multi Cap Fund	5,484	18.65	15.61	11.76	20.89	13.71	0.04
L&T Equity Fund	2,798	18.94	17.96	11.37	18.60	13.44	0.07
IDBI Diversified Equity Fund	363	17.95	14.51	11.30	--	12.24	0.04
HDFC Equity Fund	21,754	18.61	20.05	10.81	18.20	16.73	0.06
Baroda Pioneer Multi Cap Fund	673	17.13	16.71	10.21	16.31	13.57	0.03
UTI Equity Fund	7,986	18.26	15.27	10.18	17.48	12.52	0.11
Canara Rob Equity Diver Fund	913	21.21	17.66	10.09	15.87	14.44	0.06
Reliance Multi Cap Fund	9,732	19.79	15.10	9.00	18.15	15.00	0.00
Taurus Starshare (Multi Cap) Fund	210	15.40	15.17	8.58	14.52	14.67	-0.01
Union Equity Fund	212	14.60	13.93	6.32	12.92	13.09	0.01
LIC MF Multi Cap Fund	275	10.85	11.11	4.63	11.96	15.50	-0.04
NIFTY 200 - TRI		19.95	18.41	10.98	15.77	13.11	0.10

Returns are on a rolling basis and those depicted over 1-Yr are compounded annualised.
Data as on August 07, 2018
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

The top quartile performance showcased by Kotak Standard Multicap Fund (erstwhile Kotak Select Focus Fund) has attracted many investors, pushing its AUM towards the Rs 20,000 crore mark. Notably the funds corpus has increased almost four folds in the last 2 years, from around Rs 5,000 crore in June 2016 to around Rs 20,000 crore at present. The fund has consistently outperformed its benchmark, the Nifty 200 – TRI index, over longer time periods of three-years and five-years, to the extent of 5-6 percentage points. In these timeframes, the fund has also fared better than many of its popular category peers.

Kotak Standard Multicap Fund has shown fair level of stability. Its standard deviation of 12.79% signifies that the funds volatility has been lower than the benchmark (13.11%), while its Risk Adjusted Return (Sharpe Ratio) of 0.15 is one of the highest in the category, and much ahead of its benchmark. The funds superior risk management strategies and ability to timely switch its focus to defensives has helped it tide uncertain market phases well.  

Investment Strategy of Kotak Standard Multicap Fund

Launched with a mandate to follow focused investment strategy, Kotak Select Focus Fund has been renamed as Kotak Standard Multicap Fund and classified under multi-cap funds category. The newly defined multi-cap mandate still allows the fund to continue with its strategy of focusing on selected sectors, while holding exposure across market caps with a large cap bias.

Kotak Standard Multicap Fund follows a combination of top down and bottom up approach to stock picking. It focuses on select sectors that the fund manager believes will perform better in the economy, and applies bottom up approach to pick stocks within selected sectors. The funds core portfolio comprises of 5-6 sectors together totaling to around 60-70% of its assets. Even though it follows a focused approach towards few selected sectors, it tries to ensure that the top 10 stocks does not breach the 40% mark.

Kotak Standard Multicap Fund - Portfolio Allocation and Market Capitalisation Trends

Despite following a multicap strategy, the funds portfolio has remained biased towards large caps, that account for atleast 70% of its assets. Over the past year or so, the market cap allocation in the funds portfolio has remained almost steady. The exposure to large-caps has remained around 75% to 80% of its assets, while mid and small caps have well been below the 20% mark. Although the fund has been classfied as multi-cap fund, it cannot be termed as a true to its style multicap fund. Over the last 6-8 months the fund has remained heavy weight on large caps, compared to a typical multicap fund.

Kotak Standard Multicap Fund – Top Portfolio Holdings

Top 10 Stocks Stocks % of Assets HDFC Bank Ltd. 7.66 Reliance Industries Ltd. 4.90 Larsen & Toubro Ltd. 4.89 HDFC Ltd. 4.72 Infosys Ltd. 4.28 ICICI Bank Ltd. 3.47 Hero MotoCorp Ltd. 2.89 RBL Bank Ltd. 2.79 State Bank Of India 2.68 Maruti Suzuki India Ltd. 2.67	Top 5 Sectors
Holdings (in %) as on June 30, 2018 (Source: ACEMF)

Kotak Standard Multicap Fund holds a well-diversified portfolio of around 50 to 60 stocks. As on June 30, 2018, the fund held 57 stocks in its portfolio, with top 10 stocks together accounting to about 41% of its assets. Typical large cap names like HDFC Bank, Reliance Industries, L&T, HDFC Ltd., Infosys, ICICI Bank etc. have been among the core holdings in the fund’s portfolio. While creating the portfolio, the fund manager limits his picks to not more than 5-6 stocks from a single industry. He also makes active use of derivatives to take position in few stocks at a discount.

Around one-third of the fund’s portfolio is allocated to stocks in the Banking and Financial sector, followed by Auto, Consumption and Engineering. The top 5 sectors together account for around 58% of its assets. I.T., Cement, Petroleum and Oil & Gas are among the other core sectors in the fund’s portfolio with an allocation of about 5-6% each. While the fund remains heavyweight on cyclicals to ride the market boom and rallies, it also makes well use of defensives during extreme market conditions.

Major Gainers: Stocks like Avenue Supermarts, Bajaj Finance and Bata India have contributed to the fund’s outperformance in the last one year, gaining over 60-80%. Other stocks in the funds portfolio like Bajaj Finserv, Reliance Industries, Infosys, Solar Industries, Whirlpool India, Ashok Leyland and IndusInd Bank have appreciated over 30% in value, in a year's time.

Major Losers: Among the list of losers, the fund held Kirloskar Oil Engines, Techno Electric & Engineering Co., Cadila Healthcare, The Federal Bank and Bharat Electronics, that lost about 25-35% in value. Nevertheless, the exposures to these stocks have been less than 2% of its assets.

Suitability of Kotak Standard Multicap Fund

Multi cap funds should ideally offer the benefit of diversification across market caps. In the absence of any limit on market cap segment, Kotak Standard Multicap Fund can easily continue with its large cap orientation. However, the new classification offers it the flexibility to switch its allocation across market caps, without any limit or restriction.

The extra-ordinary performance of the fund has been driven by its smart sector and stock selection strategy. However, its heavyweight position towards few selected sectors may even result in short term underperformance, if any of its core sectors remains temporarily out of favour. While it is quite easier to switch sector focus with a small size, the larger size of the fund may become a hurdle in switching focus instantly across sectors. Although the fund has shown extra-ordinary performance in the past, investors need to keep a realistic return expectation from the fund.

While Kotak Standard Multicap Fund has turned out to be a rewarding proposition for investors, it is necessary to understand your risk appetite while investing in equity mutual funds and have a decent time horizon in mind. Selecting best mutual funds is not everyone's cup of tea. It needs a sheer focus and much detailed analysis across both quantitative and qualitative parameters.

PersonalFN's SMART score matrix has been designed to evaluate mutual funds on host of such quantitative as well as qualitative parameters.

The SMART Score Matrix

S	Systems and Processes
M	Market Cycle Performance
A	Asset Management Style
R	Risk-Reward Ratios
T	Performance Track Record

All the parameters listed above are crucial to test and identify solid mutual funds that have the potential to reward investors in the long run. Using this 5 point evaluation matrix, PersonalFN has successfully guided investors in selecting right mutual funds with a solid growth potential.

Note: This write up is for information purpose and not a recommendation to buy or sell the mutual fund scheme. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your financial planner or investment advisor.

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About the Company including business activity 

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989. 

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

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Disciplinary history

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2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
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