Should I stop my SIP in SBI Bluechip Fund?

Published: October 28, 2020 at 12:02 pm

Last Updated on August 30, 2021 at 8:07 am

Shyam Sunder asks, “I have been investing in SBI Bluechip Fund via SIP for about six years now. The fund has underperformed its benchmark for the last five years. Should I stop my SIP and invest elsewhere?” Let us discuss this dilemma faced by many large cap mutual fund investors.

At this point, it is quite easy to sing the praise of passive investing and to suggest Shyam shifts from SBI Bluechip Fund to a Nifty or Sensex fund. While that is certainly not bad advice, the performance of large cap funds should be viewed from a neutral perspective. We shall do so from the shoes of an analyst, and that of an investor and what investors wanting to switch to passive funds should appreciate.

Anyone who has spent time analysing large cap fund returns in a portal like Value Research would have noticed a big shift in positions. A few years ago if you were to sort funds by star rating, you would only see active funds five-star rated. A year or so ago, the situation changed topsy turvy: all five star rated funds were index funds. Today again there seems to be a shift: After the market crash 80% of active large cap funds outperform Nifty, Nifty 100 (this article was written in May 2020, the percentage has significantly dropped now but is still better than what it was in say Oct 2019).

If you had tried solving a problem before (physical or digital), you would better appreciate the situation here. It is a case of too many changes happening in a short time. First, SEBI asks funds to bin themselves into categories and classifies the top 100 stocks by market capitalization as large cap stocks and mandates funds in this category to hold 80% of such stocks.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Next, the return difference between Nifty 50 and Nifty 50 Equal-Weight indices grew higher and higher, reaching an all-time high (Dec 2019). This market imbalance, where just a few stocks govern nifty returns, was briefly destroyed by the March 2020 crash but seemed to have reared its head again.

While large cap mutual funds changed composition during early, mid-2018, Nifty also became too dependent on its top stocks. This is a case of too many changes, and when you try to debug a problem, it is hard to identify the source.

When the benchmark holds 15% of a single stock (RIL), and when the weight of the top five stocks is the highest over the last ten years it is hard to judge actively managed large cap funds. See: These six stocks have dominated the Nifty 50 in the last ten years.

To understand what I mean, let us inspect the portfolios of funds that are currently five-star rated. For comparison, the top 3 Nifty 50 stocks (Oct 2020) are: RIL 14.9%, HDFC Bank 9.67%, Infosys 7.62%

  • Axis Bluechip: RIL 8.33% ; HDFC Bank 9.61% ; Infosys 9.81%
  • Canara Robeco Bluechip Equity Fund RIL 8.81% ; HDFC Bank 8.31% ; Infosys 8.14% ;
  • Invesco India Largecap Fund: RIL 14.21%; HDFC Bank 9.58% ; Infosys 8.67%;
  • Mirae Asset Large Cap Fund: RIL 11.68%; HDFC Bank 9.48%; Infosys 8.47%;
  • Sundaram Select Focus Fund: RIL 8.89% ; HDFC Bank 8.16% ; Infosys 8.38% ;

The above list represents the stocks in the top 3/4 in terms of weight. In contrast, SBI Bluechip Fund holds RIL 4.95%; HDFC Bank 9.52%; Infosys 4.5%; This essentially means in Oct 2020 to beat Nifty/Sensex you must hold a good amount of the index top stocks because opportunities elsewhere are less. If you want your fund to be five-star rated, it must hold a good amount of index top stocks.

Analyst point of view: This would put any analyst into a pickle. Forget about star ratings – the business of comparing apples with oranges. Just a comparison with Nifty causes problems. Today the room for active management has become limited by the regulator and the market.  Whether this is right or wrong, good or bad is subjective. The question analysts should ask is, is the Nifty or Sensex or Nifty 100 the right benchmark? The reason being: If the top stocks of an active fund are not the same as the benchmark, its returns would be poor.

Is it time for market capitalization-weighted indices to have a capping on weights? When strategic indices can have 5% or 10% weight cap, why not these? Are index curators worried their factor indices would take a hit if the mainstream indices are constrained this way? Even if we do not have answers, an analyst is obliged to ask these questions.

Investors’ point of view: The investor looks at only the returns.  They do not care if the top stocks of their active fund are the same as that of the index or not. For the high fee they pay, they only want returns and this is fair. The problem is, an AMC chasing after AUM may be desperate enough to appreciate the market imbalance and fall in line with it. An established AMC with already enough AUM may feel otherwise.

In short, an investor has little control over which way the active fund manager would swing – with the wind and get five-star rated or against it and cause concerns. It is perfectly fine to stop your SIP in SBI Bluechip or any other active fund and shift existing and future investments into a Nifty or Sensex fund, however …

Do so only for the right reasons. Tomorrow the tide could change, and index funds could be pushed down to the bottom of the large cap ladder. There will always be some fund that is able to beat the Nifty. That fund will not always be your fund. Shift to passive funds only if you can appreciate this ground reality.

Do not shift because you looked at some trailing returns or rolling returns and found that beating the index is hard. If you do this then it would be no different than choosing a five star rated fund or choosing a winner. Choose passive investing due to its simplicity, not because of temporary high returns. The alternative is to wait for the market inhomogeneity to reduce, and then see how active funds fare but that could be one long, expensive wait.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)