From Top 200 To Top 100, Can Reliance Large Cap Fund Still Reward? (2024)

Launched way back in 2007, as Reliance Equity Advantage Fund, the fund had a broader investment mandate where it could invest in stocks across market caps, although with a large cap bias. However, effective August 23, 2012, the fund was renamed as Reliance Top 200 Fund, while its investment universe was restricted to stocks present in the S&P BSE 200 index or the top 200 stocks by market capitalisation.

By categorizing to large cap, the fund has further trimmed its investment universe to top 100 stocks. SEBI’s classification demands that large cap funds should hold a minimum 80% investment in equity & equity related instruments of large cap companies. Large-cap stocks are defined as the top 100 companies by market capitalisation.

The fund managers, Mr Sailesh Raj Bhan and Mr Ashwani Kumar had been with the fund since its inception. However, in May 2018, the co-fund manager Mr Ashwani Kumar gave way to Mr Kinjal Desai to co-manage the fund.

Seeing the upsurge in its performance in 2017, the fund quickly attracted many investors, and also saw a dramatic increase in its AUM, from about Rs 3,500 crore to over Rs 10,000 crore within a year’s time.

It is noteworthy that the fund now has a new mandate and will share a common investment objective with its large cap peers. Will the fund managers be able to use the revised mandate to the advantage of the fund or will it lose its charm? Only time will tell.

In this brief analysis, we take a close look at the features and performance of Reliance Large Cap Fund, which was more driven by its broader investment mandate followed earlier.

For the entire list of scheme names changes, do read: Your Mutual Fund Scheme Renamed. What Should You Do?

Investment Objective of Reliance Large Cap Fund

The primary investment objective of Reliance Large Cap Fund is to seek to generate long term capital appreciation by investing predominantly into equity and equity related instruments of large cap companies. The secondary objective is to generate consistent returns by investing in debt, money market securities, REITs and InvITs.

Fund Details: Reliance Large Cap Fund

From April 28, 2018, the new investment allocation of Reliance Large Cap Fund –

• 80% - 100% to stocks of large cap companies as defined by the regulator and prepared by AMFI

• 0% - 20% to other equity and equity related instruments

• 0% - 20% to debt and money market instruments

• 0% - 10% to units of REIT/InvITs

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• 0% - 10% to Non-convertible preference shares

Growth Of Rs 10,000, If Invested In Reliance Large Cap Fund 5 Years Ago

Data as on July 11, 2018
(Source: ACE MF)

Reliance Large Cap Fund: Year-on-Year Performance

YTD as on July 11, 2018
(Source: ACE MF)

Reliance Large Cap Fund has a track record of over a decade. The year-on-year performance comparison of the fund vis-à-vis its benchmark – S&P BSE 200 -TRI Index shows that the fund has outperformed the benchmark in only 5 out of last 10 calendar years. Bulk of the alpha was generated in CY 2012 and CY 2014. In 2014, it outperformed the benchmark by over 15 percentage points. But this euphoria was short lived. In gloomy and uncertain market conditions of 2015 and 2016, the fund was found struggling. Nevertheless, in CY 2017 the fund capitalised on the up move with a 3 percentage point gain over the benchmark.

Reliance Large Cap Fund: Performance Vis-à-vis Category Peers

*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.

In terms of performance, Reliance Large Cap Fund has certainly rewarded its investors. Barring the 2 year rolling period, it has been able to beat the benchmark across time periods.

While the fund’s performance has been impressive, it has come at a higher volatility than its pure large cap peers, as well as the benchmark. Notably, the fund had a broader investment mandate, which allowed it to hold significant exposure into mid caps as well. However, with a revised mandate in place, once may hope the fund to impress on the risk front as well.

The fund will now closely compete with other popular peers like—SBI BlueChip Fund, ICICI Prudential Bluechip Fund, Aditya Birla SL Frontline Equity Fund and HDFC Top 100 Fund.

Investment Strategy of Reliance Large Cap Fund

Classified under large cap funds, Reliance Large Cap Fund is now mandated to invest predominantly in stocks of top 100 companies by full market capitalization. The fund will maintain a minimum exposure of 80% to Large Cap stocks. It may also invest upto 20% of its assets in debt and money market securities and upto 20% of AUM in REITs and InvITs.

The fund endeavors to invest in leaders or potential leaders with established business models & sustainable free cash flows. It focuses on growth companies available at a reasonable valuation & relatively better return on equity. While not much will change in terms of investment strategy, the fund will not have the freedom to choose from the wide range of higher mid cap stocks, which helped it ride the momentum and boost returns in the past.

Reliance Large Cap Fund - Portfolio Allocation and Market Capitalisation Trends

Holdings (in %) as on June 30, 2018
(Source: ACEMF)

Reliance Large Cap Fund has usually held about 80% to 90% of its portfolio in large-cap stocks, along with 10% to 15% of its assets in mid cap stocks. Over the past year, the large cap exposure has been in a range of 81%-89%. The exposure to mid caps, has remained at around 10% on average. The cash allocation in the funds portfolio has been limited to 5%. However, there have been instances where the cash limits have been raised to 6% as well.

Reliance Large Cap Fund – Top Portfolio Holdings

Top 10 Stocks Stocks % of Assets State Bank Of India 8.98 HDFC Bank Ltd. 6.41 ITC Ltd. 5.15 Larsen & Toubro Ltd. 5.08 Infosys Ltd. 3.68 Axis Bank Ltd. 3.26 Indian Oil Corporation Ltd. 2.94 ICICI Bank Ltd. 2.94 Tata Steel Ltd. 2.91 Tata Motors Ltd. 2.81	Top 5 Sectors
Holdings (in %) as on June 30, 2018 (Source: ACEMF)

Banking and Finance stocks dominate Reliance Large Cap Funds portfolio, together occupying around one third of the portfolio allocation. Pharma stocks are the next top bets with an exposure of about 9%. Industrial Capital Goods and Consumption follow behind with a weightage of about 7% to 8% in the portfolio. Reliance Large Cap Fund is highly concentrated to few selected sectors, with top five sectors together accounting for 58% of its assets.

Among stocks, SBI and HDFC Bank top the list with around 9% and 6.5% exposure. ITC and Larsen & Toubro trail closely behind with an exposure of around 5% each. Infosys, Axis Bank, ICICI Bank, Tata Steel and Tata Motors are among the other index heavyweights in the funds top portfolio holdings. Currently about 90% of its assets is in stocks belonging to the S&P BSE 200 index, which together carry about 57% weightage in the index.

Though the large-cap fund has as many as 48 stocks in the portfolio, the allocation to the top holdings is fairly diversified, where the top 10 stocks account for 44% of its assets.

Suitability of Reliance Large Cap Fund

Large-cap oriented funds are better poised to handle market volatility vis-à-vis mid-and-small caps. Stable businesses, greater market share, quality of management and the sustainability prospects are factors that seem convincing to take exposure to large-caps at the current level.

Large sized companies with strong balance sheets and proven track-records could help ride the wave of short-term volatility to a certain extent. Therefore, diversified equity funds with a predominant large-cap allocation can offer stability to ones investment portfolio.

Reliance Large Cap Fund has been amongst the few large-cap funds that take opportunistic allocation to mid-caps, to generate higher alpha. However, with the revision in its investment mandate and universe the fund may go slow on its mid cap bets. It will be interesting to see, if the fund can still sustain the alpha over the benchmark in momentum driven markets.

Given the funds exposure is heavily skewed towards index heavyweights, the returns of the fund could be expected to be broadly in line with the benchmark. However, the active management and selection of weightage in the stocks may lead to margin of deviation in performance over the index.

Despite its superior performance, the higher volatility in performance has been a concern for Reliance Large Cap Fund, especially in bearish markets. One should understand his / her suitability and risk appetite, and evaluate if such funds could be an apt fit in the investment portfolio.

If you are not sure about how to align these schemes with your financial goals, do consult your financial planner or investment advisor.

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 investment consultant/advisor.

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1. Neither QIS, it’s Associates, Research Analyst or his/her relative have any financial interest in the subject Company , except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF.
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