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Reliance Mutual Fund Equity Performance Review

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Key Highlights

■      For investors, equity as an asset class offers superior risk-adjusted returns in the long term. However, investing in stocks involves regular research and analysis on the underlying investments. Most retail investors do not have the time for such detailed investments. A better alternative for such investors is equity mutual funds. Investments in mutual funds provide a host of advantages vis-à-vis direct equity investing such as diversification, professional management, choice and convenience.

■      An analysis of diversified equity schemes of Reliance Mutual Fund since their inception shows superior performance over the long term. The composite performance index of Reliance Mutual Fund’s diversified equity funds has grown over 40 times since inception of its portfolio in 1995. Essentially, this means that Rs. 1 lakh invested in the diversified equity funds of Reliance Mutual Fund would have grown to around Rs. 40 lakhs.

■      For this analysis, we have considered ten actively managed diversified equity funds of the fund house and constructed an asset-weighted performance index – Reliance Equity Composite Index (RECI) – to gauge performance. RECI has outperformed the broad market barometer CNX Nifty and CRISIL – AMFI Equity Fund Index for one-, three-, five-,10- and 15-year periods ended September 2014.

■      In the milieu, investing at regular intervals over the long term ensures utilising both the high and low points of the market, and making the best of both worlds through rupee cost averaging. For example, an investment of Rs. 10,000 in RECI every month since inception till Sep 30, 2014 – amounting to a principal of Rs. 22.7 lakh – would have grown to Rs. 3.41 crore versus Rs. 99.10 lakh in the CNX Nifty. The SIP returns of Reliance Mutual

Fund’s schemes clearly highlight the importance of disciplined investing and wealth creation over the long term.

■      The volatility (measure of dispersion in returns) of RECI has been lower than the CNX Nifty. The maximum drawdown (fall since peak to lowest point) of the performance index has been better than the equity category but inferior to that of CNX Nifty.

Overview

Reliance Mutual Fund has ten diversified equity funds with assets under management1 (AUM) of Rs. 25,996 crore on September 30, 2014, accounting for 11% of the industry’s open-ended equity AUM. The list includes two schemes – Reliance Growth Fund and Reliance Vision Fund – which have been in existence since 1995.

Annualised return of equity schemes since inception till Sep 30, 2014:

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* Formerly known as Reliance Equity Fund. Absolute return for the fund since change on Jan 22, 2014 till Sep 30, 2014 is 25.01%

Aggregate performance

The asset weighted composite index of the fund house, Reliance Equity Composite Index (RECI), has generated returns higher than CRISIL – AMFI Equity Fund Performance Index2, representative of the equity category, and the broad market index, CNX Nifty across various timeframes. The index3, RECI, has been constructed to track and review the aggregate performance of these schemes from inception in October 8, 1995 to Sep 30, 2014.

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*Inception date of CRISIL – AMFI Equity Fund Performance Index is April 1, 1997.

 Quarterly Average AUM 
CRISIL – AMFI Equity Fund Performance Index seeks to track the performance of the equity funds. The index consists of mutual fund schemes from diversified equity, large cap equity and small and mid-cap equity categories
The index is the weighted average of daily performance of the said schemes with their quarterly/monthly AUM

RECI has outperformed the broad market barometer CNX Nifty and CRISIL – AMFI Equity Fund Index over one-, three-, 10- and 15-year period ended Sep 30, 2014. The outperformance has been higher over long term. Over a 15-year period, an amount of Rs.1 lakh invested in RECI would have yielded Rs. 22.80 lakhs compared with the CNX Nifty’s Rs. 5.89 lakh and the equity category’s Rs.16.74 lakh. In percentage terms during the same period, RECI has given an annualised return of 23.16% compared with the CNX Nifty’s 12.21% and the equity category’s 18.88%.

Performance across market phases

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Note: CRISIL – AMFI Equity Performance Index data not available for Pre Tech Bubble phase. Inception date of CRISIL – AMFI Equity Fund Performance Index is April 1, 1997. All returns over one-year period are annualised.

 

RECI has performed well in the majority of the bull-market phases. In the recent market rally, the index outperformed the equity category and the CNX Nifty by 9.50% and 22.62%, respectively, on an annualized basis. It also surpassed the equity category during each of the bear market periods, barring the European crisis. During the downturn, CNX Nifty gave lower negative returns compared to RECI and equity category.

 

Long term performance4

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4 Inception date of CRISIL – AMFI Equity Fund Performance Index is April 1, 1997.

An amount of Rs. 1 lakh invested in the earliest funds i.e., Reliance Growth Fund and Reliance Vision Fund would have grown to Rs. 66.33 lakh (compounded annualised growth rate of 27.07%) and Rs. 38.56 lakh (23.19%) respectively, since April 1, 1997. The same amount invested in RECI would have yielded Rs. 44.87 lakh (24.27 %) whereas, the equity category would have yielded Rs. 35.50 lakh (22.61%) over the same time.

Wealth creation through SIP

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RECI has generated greater returns than the equity category on three-year and five-year rolling return basis. It has never given negative return for any five-year period on a daily rolling return basis. The average return over five-year period on a daily rolling basis was 27.81% for RECI compared with 14.23% for the CNX Nifty and 22.46% for the equity category.

Rolling return5 analysis

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RECI has generated greater returns than the equity category on three-year and five-year rolling return basis. It has never given negative return for any five-year period on a daily rolling return basis. The average return over five-year period on a daily rolling basis was 27.81% for RECI compared with 14.23% for the CNX Nifty and 22.46% for the equity category.

Risk analysis

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RECI has also fared better than the equity category on maximum drawdown, which represents the worst-case scenario return on an investment. Further, RECI’s standard deviation – a measure of volatility – has been lower than the CNX Nifty.

5 Series of returns calculated at a pre-defined frequency over a specified period of time.

Summary

■      RECI has outperformed CNX Nifty and CRISIL- AMFI Equity Fund Performance Index, a representative of the equity mutual funds in the industry across various time frames ended Sep 30, 2014.

■      In the recent three-year period, RECI gave 22.95% returns versus the CNX Nifty’s 17.22% and the equity category’s 20.21%. In the ten year period, the outperformance has been higher with RECI generating 21.31% compared with CNX Nifty’s 16.38% and the equity category’s 19.58%. Over longer time-frame of 15 years, RECI surpassed returns from CNX Nifty and the equity category. Since inception, RECI has grown over 40 times.

■      RECI has been less volatile than CNX Nifty.

■      RECI has never given negative return for any five-year period on a daily rolling return basis. The average annualised return of RECI and the equity category for the same period (starting April 1997) stood at 27.81% and 22.46% respectively.

■      RECI has generated superior returns in a rising-market scenario. Except the recovery period post sub-prime crisis, RECI outperformed the equity category in the bull phases. It also outperformed the broader CNX Nifty during the bull markets.

■      SIP of Rs 10,000 per month invested for ten years (Rs. 12 lakhs) would have grown to Rs. 29.53 lakhs yielding annualised returns of 17.16%. A similar investment in the CNX Nifty would have amounted to Rs. 23.43 lakhs and yielded 12.84%. On longer time frames as well, RECI posted returns higher than CNX Nifty and the equity category; thereby, exemplifying the superior SIP performance.

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