Mirae Asset Large Cap Fund Review: Buy or Switch To Index Funds?

This is a performance review of Mirae Asset Large Cap Fund. We find out if it makes sense to choose or keep the faith with this fund or switch to large cap index funds

Image of a person holding decorative light bulbs symbolic of whether one should hold on to MIrae Large Cap Fund

Published: December 15, 2019 at 11:37 am

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Mirae Asset Large Cap Fund is an open-ended equity scheme that will invest 80% of its assets across large cap stocks with some exposure to mid cap stocks with the flexibility to invest across sectors and themes.  Launched in April 2008, the fund has changed nature twice. In this performance review, we find out if it makes sense to buy (or hold onto) this scheme or is it better to switch to large cap index funds.

From inception to  Feb 2018, the fund was called Mirae Asset India Opportunities Fund and had considerable freedom to invest across market caps. To comply with SEBI categorization rules, the fund was renamed as Mirae Asset India Equity Fund as labelled a multicap fund.

Then a little more than a year later, the AMC announced from 1st May 2019, the fund was renamed and recategorised as Mirae Asset Large Cap Fund with a benchmark change from BSE 200 to Nifty 100.

Market Cap Allocation

There seems to be a general perception that this fund always had a large-cap tilt and these changes will not matter much. This is incorrect. As per the AMC’s product update dated July 2019, the fund held a significant portion of mid cap stocks around 2016.

Market Cap Allocation of Mirae Asset Large Cap Fund as per Mirae AMC from Jan 2015 to July 2019Since July 2017, it has operated as a large-cap fund.

Mirae Asset Large Cap Fund Asset Allocation History from July 2017 to Nov 2019
Mirae Asset Large Cap Fund Asset Allocation History from July 2017 to Nov 2019

Mirae Asset Large Cap Fund vs NIfty 100

The since inception NAV growth and comparison with its current benchmark, Nifty 100 may look impressive, but a closer look would paint a different picture.

Mirae Asset Large Cap Fund NAV growth comparison with Nifty 100 since inception on April 2008
Mirae Asset Large Cap Fund NAV growth comparison with Nifty 100 since inception on April 2008

From Aug 2016, the fund has managed to keep its nose above Nifty 100.

Mirae Asset Large Cap Fund NAV growth comparison with Nifty 100 from Aug 2016 to Dec 2019
Mirae Asset Large Cap Fund NAV growth comparison with Nifty 100 from Aug 2016 to Dec 2019

However, one year forward, things look quite different. The fund has failed to beat Nifty 100 since at least Aug 2017.

Mirae Asset Large Cap Fund NAV growth comparison with Nifty 100 from Aug 2017 to Dec 2019
Mirae Asset Large Cap Fund NAV growth comparison with Nifty 100 from Aug 2017 to Dec 2019

This essentially means the “outperformance” that older investors enjoy today were already obtained more than two years ago and nothing has been added to it. This is a case of too many things happening too soon. Before we take stock, let us complete the performance comparison with a rolling-return and risk study.

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Rolling Returns and Rolling Risk

If we consider every possible five-year return windows in the past, the fund has done well.

Rolling Returns Comparison of Mirae Asset Large Cap Fund with Nifty 100 TRI over 5 years
Rolling Returns Comparison of Mirae Asset Large Cap Fund with Nifty 100 TRI over 5 years

The volatility over these five-year windows has become comparable to Nifty 100 indicating the shift towards large cap stocks. In this case, how much the monthly returns deviate from the five-year average monthly returns is calculated. This is known as the standard deviation.

Rolling Risk or standard deviation Comparison of Mirae Asset Large Cap Fund with Nifty 100 TRI over 5 years
Rolling Risk or standard deviation Comparison of Mirae Asset Large Cap Fund with Nifty 100 TRI over 5 years

Over every possible three-year windows, the decrease in performance is evident.

Rolling Returns Comparison of Mirae Asset Large Cap Fund with Nifty 100 TRI over 3 years
Rolling Returns Comparison of Mirae Asset Large Cap Fund with Nifty 100 TRI over 3 years

Over these 3-year windows, the increase in volatility is also clearly seen.

Rolling Risk or standard deviation Comparison of Mirae Asset Large Cap Fund with Nifty 100 TRI over 3 years
Rolling Risk or standard deviation Comparison of Mirae Asset Large Cap Fund with Nifty 100 TRI over 3 years

Expense Ratio History

Mirae has kept the TER of the direct plan invitingly low but could increase if there is a sharp rise in AUM. See: Why SEBI should stop frequent mutual fund expense ratio changes

Comparison of direct plan and regular plan expense ratios of Mirae Asset Large Cap fund from July 2013 t Nov 2019
Comparison of the direct plan and regular plan expense ratios of Mirae Asset Large Cap fund from July 2013 t Nov 2019

Can we buy Mirae Asset Large Cap Fund or switch to index funds?

Arguments in favour of holding (for existing investors): The large cap space since Jan 2018 has been dominated by a few stocks. Almost all funds that do not hold enough of these stocks have underperformed. So the fund needs to be given time.

Arguments in favour of switching to index funds: Mirae Large Cap beat NIfty 100 only when it had significant exposure to mid cap stocks.  With a mandate to hold 80% of the Nifty 100 universe, it would find it tough going forward to beat this index. In fact, the lack of performance in the actively managed large cap spaces dates long before the SEBI categorization rules came into play: This will change the way you invest: S&P Index Versus Active Funds report and Only Five Large Cap funds have comfortably beat Nifty 100!

While the fund can be given time by new investors on the sidelines, existing investors need not be patient for long. They are better off moving to large cap index funds. If they wish to wait, then they can keep an eye on the NIfty 100 Equal Weight Index. If the return divergence between this and the NIfty 100 reduces, active large cap funds better performing well. Else it is decidedly time to move on. More on this later.

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