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Investor favourites in the past two-three years, Axis Bluechip and Axis Long Term Equity mutual funds have significantly underperformed their benchmarks and category averages over the past year.

According to data from Value Research, Axis Bluechip has delivered 58.82% over the past year compared to 82.60% on the S&P BSE 100 and 75.01% for the large-cap category on average. This puts it 64th among the 65 funds in the category, making it the lowest-ranking fund bar one.

Axis Long Term Equity, the tax-saving ELSS (equity-linked saving scheme) of Axis Asset Management, has also sharply lagged the benchmark. It has delivered 66.51% over the past year compared to 87.46% on the S&P BSE 500 and 77.54% for the category on average. It ranks 31st out of 38 funds in the category.

Axis Midcap Fund and Axis Small Cap Fund have also failed to beat their category averages in the past year. Axis Midcap Fund has delivered 69.77% compared to the category average of 92.91%. Axis Small Cap Fund has given 86.55% compared to the category average of 108.54%, shows data from Value Research.

Experts attributed the reversal in fortunes of the popular Axis equity schemes to a shift in investing styles and a high cash holding in the funds
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Experts attributed the reversal in fortunes of the popular Axis equity schemes to a shift in investing styles and a high cash holding in the funds

“There are a few reasons for this. Yes, value stocks have rallied in the past year compared to growth stocks and our style is growth. Second, foreign money tends to flow in and out of growth stocks and hence these get disproportionately impacted when money flows out. Third, ours is a high alpha low beta portfolio. So, when high beta stocks do well as they did in 2016, our portfolios underperform. However, our funds tend to bounce bank when this situation ends. Fourth, we began the year on a strong base and there is a base effect at play here," said Jinesh Gopani, head of equity, Axis Mutual Fund.

However, industry experts had a different take on the performance.

“I don’t recommend Axis funds. I have always felt that their performance has been good in some periods, but highly inconsistent. The growth style adopted by the fund house may not have paid off in the past year," said Viral Bhatt, founder, Money Mantra, a Mumbai-based MF distributor.

Axis funds have seen significant flows over the past two-three years, largely on account of their performance in previous years. The assets under management (AUM) of Axis Bluechip and Axis Long Term Equity are 23,496 crore and 27,216 crore respectively (as of 28 February). Three years ago, these were 1,989 crore and 17,263 crore, respectively, in April 2018, implying a jump in size of almost 12 times for Axis Bluechip and 1.6 times for Axis Long Term Equity Fund.

The long-term record of the fund remains relatively strong. The five-year compound annual growth rate (CAGR) of the two schemes is 17.92% and 15.99% higher than the 14.57% and 14.07% category averages of large-cap and ELSS funds, respectively.

Experts attributed the drop to a shift in investing styles and a high cash holding in the funds. Axis Midcap and Axis Small Cap Fund have also beaten their category averages over the past three and five years.

“These funds have delivered strong outperformance in earlier years due to their focus towards the growth style of investing. Some of these held relatively higher levels of cash in the past year. This, along with a rotation back from growth to value, has resulted in the relative underperformance," said Kaustubh Belapurkar, director, fund research, Morningstar Investment Advisor India.

BUMP IN THE ROAD

Gaurav Rastogi, CEO, Kuvera, an online mutual fund investment platform, counselled patience.

“Axis fund house and some of its funds have followed an investment process or style that has done well in the last three and five years. However, it had a relative slump last year. If you are invested in an active fund, then you must expect such periods where your fund manager’s investing style, be it growth, value or momentum, will underperform. Those periods will test your conviction in the fund manager. Investing returns are cyclical, so investors are better served to focus on what will perform over time rather than trying to perform all the time. If all of this sounds too complicated, then invest in index funds and keep it simple," he said.

Investors should note that other asset management companies (AMCs) have also undergone periods of underperformance.

HDFC Mutual Fund is a notable example with HDFC Flexicap Fund (erstwhile HDFC Equity Fund) and HDFC Top 100 having underperformed their category averages on a three- and five-year basis. However, the schemes have recovered some lost ground over the past year as value stocks moved higher compared to their growth counterparts.

“Stock picking is both an art and a science. Science because the fund manager does analysis and art because the market is a confluence of so many diverse forces; reading that is an art. Every fund manager goes through cycles of performance because in the short to medium term, stock price movement is subject to so many diverse factors. Over the long term, generally, fundamentals prevail," said Joydeep Sen, founder, Wiseinvestor.

Belapurkar of Morningstar added: “The Axis underperformance underscores the importance of having funds with both growth and value styles in your portfolio."

Investors should ordinarily take stock of the long-term returns of a fund before making a decision on exiting. Also, factor in the tax payable. If the fund is held for less than one year, short-term capital gains (STCG) tax at 15% applies on gains in the fund. If it is held for longer, long-term capital gains (LTCG) tax at 10% applies on gains in the fund above 1 lakh per annum. Exit loads can also apply to redemptions in short periods. Typically, in equity funds, they are imposed on redemptions within a year of purchase. ELSS funds have a lock-in period of three years.

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