Reliance Mutual Fund Equity Funds Review

As on March 31, 2015

Performance Review

Highlights

■ As an asset class, equity offers superior risk-adjusted returns in the long term. However, investing directly in

stocks requires deep research and analysis. Most retail investors do not have the time or inclination for this.

Equity mutual funds, therefore, are a better alternative. Mutual funds offer many advantages compared with direct

investing in shares such as diversification, professional management, choice and convenience.

■ A CRIISL analysis of equity schemes of Reliance Mutual Fund since inception shows superior performance over

the long term. The composite performance index of Reliance Mutual Fund‟s equity funds has grown over 52

times since inception in 1995. In other words, Rs. 1 lakh invested in the equity funds of Reliance Mutual Fund two

decades back would have grown to around Rs. 52 lakh now.

■ For this analysis, we considered ten actively managed equity funds of the fund house and constructed an asset-

weighted performance index - Reliance Equity Composite Index (RECI) – and gauged performance. RECI has

outperformed the broad market barometer CNX Nifty and CRISIL - AMFI Equity Fund Index for all the timeframes

– both long and short -- considered for the analysis.

■ A CRISIL analysis revealed that portfolios of the ten schemes, considered for analysis, comprised of 79 stocks

which were consistently held over the past 3 years ended March 31, 2015. 37 out of these 79 stocks offered

more than 25% annualized returns and 44 stocks offered returns higher than Nifty (17.03% annualized return)

over the past 3 years. CCL Products (India) proved to be the best amongst the consistently held stocks followed

by Eicher Motors and Indoco Remedies.

■ Investing at regular intervals for the long term ensures utilisation of both the high and low points of the market

cycle, 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 March 31, 2015 – amounting to a principal of Rs. 23.3

lakh - would have grown to Rs. 3.91 crore versus Rs. 1.06 crore 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.

■ Volatility (measure of dispersion in returns) of RECI has been lower than both the CNX Nifty and CRISIL - AMFI

Equity Fund Index. 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.

■ Reliance has well-diversified range of product offerings with products in each category i.e., large-cap, small &

midcap and diversified.

3

Overview

The ten equity funds, considered under this review, have assets under management1 (AUM) of Rs. 33,850 crore as on

March 31, 2015, accounting for 10.65% of the industry‟s equity AUM2. 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 March 31, 2015:

Scheme Benchmark Inception date Scheme returns (%) Benchmark returns (%)

Reliance Growth Fund S&P BSE 100 8-Oct-95 25.23 11.97

Reliance Vision Fund S&P BSE 100 8-Oct-95 21.62 11.97

Reliance Equity Opportunities Fund S&P BSE 100 29-Mar-05 22.38 15.82

Reliance Regular Savings Fund - Equity S&P BSE 100 8-Jun-05 18.37 15.25

Reliance Tax Saver Fund S&P BSE 100 21-Sep-05 18.08 13.32

Reliance Focused Large Cap Fund* CNX Nifty 22-Jan-14* 34.96 27.94

Reliance Mid & Small Cap Fund S&P BSE Midcap 26-Dec-06 15.62 7.79

Reliance Top 200 Fund S&P BSE 200 8-Aug-07 12.40 8.69

Reliance Quant Plus Fund CNX Nifty 18-Apr-08 10.84 8.04

Reliance Small Cap Fund S&P BSE Small Cap 21-Sep-10 21.49 1.51

* Formerly known as Reliance Equity Fund. Annualised return for the fund since inception on Mar 28, 2006 till Mar 31, 2015 is10.15%

Aggregate performance

The asset-weighted composite index of the fund house, Reliance Equity Composite Index (RECI), has generated returns

higher than the CRISIL – AMFI Equity Fund Performance Index3, representative of the equity category, and the broad

market index CNX Nifty across various timeframes. The outperformance has been greater in the long term. The index4,

RECI, has been constructed to track and review the aggregate performance of these schemes from inception in October

8, 1995, to March 31, 2015.

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

1 Quarterly Average AUM

2 Equity AUM does not include sector funds and index funds. Source: AMFI

3 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 4 The index represents asset weighted performance of ten equity schemes considered

1.56 1.99 2.03

6.13

19.86

52.21

1.27 1.60 1.624.17

5.568.13

1.44 1.84 1.94

5.46

9.08

NA

0

10

20

30

40

50

60

1 Year 3 Years 5 Years 10 Years 15 Years Inception*

Am

ou

nt

(Rs.

lakh

s)

Growth of Rs. 1 lakh

Reliance Equity Composite Index CNX NIFTY Index CRISIL – AMFI Equity Fund Performance Index

4

Over a 15-year period, an amount of Rs.1 lakh invested in RECI would have yielded Rs. 19.86 lakh compared with Rs.

5.56 lakh for CNX Nifty and Rs.9.08 lakh for the equity category. In percentage terms, RECI has given an annualised

return of 22.04% compared with the CNX Nifty‟s 12.10% and the equity category‟s 15.84%.

Performance across market phases

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 a majority of bull-market phases. During the recent rally, the index outperformed the equity

category and the CNX Nifty by 7.75% and 20.92%, respectively, on an annualised basis. It also outperformed the equity

category in all bear market periods except during the European crisis. In downturns, CNX Nifty gave lower negative

returns compared with RECI and equity category.

24.06

-38.73

68.16

-46.11

59.12

-3.44

44.65

8.86

-29.10

47.13

-43.31

49.78

-1.94

23.73

NA

-41.46

59.69

-47.17

59.87

-2.17

36.90

-60

-40

-20

0

20

40

60

80

Pre Tech Bubble(Oct 95 - Mar 00)

Tech Bubble(Apr 00 - Sep 01)

Bull Phase of(Mar 03- Dec 07)

Sub Prime Crisis(Dec 07 - Mar 09)

Post Sub Prime Crisis(Apr 09 - Dec 10)

European Crisis(Jan 11 - Jun 13)

Post European Crisis(Jun 13 - Mar 15)

(% Returns) Market Phase Performance

Reliance Equity Composite Index CNX NIFTY Index CRISIL – AMFI Equity Fund Performance Index

5

Long-term performance5

An amount of Rs. 1 lakh invested in the earliest funds -- Reliance Growth Fund and Reliance Vision Fund -- would have

grown to Rs. 75.39 lakh (compounded annualised growth rate of 27.13%) and Rs.44.57 lakh (23.47%), respectively,

since April 1, 1997. The same amount invested in RECI would have yielded Rs. 51.29 lakh (24.44%) whereas; the equity

category would have yielded Rs. 39.97 lakh (22.73%) over the same time.

Wealth creation through SIP

SIP period

Amount invested

(Rs. Lakhs)

Market value as on Mar 31, 2015 (Rs. Lakhs) Annualised returns (%)

(Rs. 10,000 per month)

RECI CNX Nifty

CRISIL – AMFI Equity Fund Performance

Index

RECI CNX Nifty

CRISIL – AMFI Equity Fund Performance

Index

1 year 1.2 1.43 1.30 1.38 37.61 15.75 28.99

3 years 3.6 5.91 4.87 5.51 35.15 20.64 29.81

5 years 6 10.62 8.63 9.91 23.06 14.55 20.18

10 years 12 30.24 22.98 28.07 17.60 12.48 16.22

15 years 18 159.05 63.26 101.44 25.74 15.30 20.68

Since inception (Oct 8, 1995)

23.3 390.50 106.25 NA 24.63 13.86 NA

Nothing quite pays like disciplined investing through SIP over long periods. A systematic investment plan (SIP) on RECI

has delivered 23.06% over five years, 25.74% over 15 years and 24.63% since inception, though the recent market

upswing and extended volatility in the past three years have boosted SIP returns over this period to 35.15%.

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

0

10

20

30

40

50

60

70

80

Apr-

97

Sep

-97

Feb

-98

Ju

l-98

De

c-9

8

May-9

9

Oct-

99

Mar-

00

Aug

-00

Ja

n-0

1

Ju

n-0

1

No

v-0

1

Apr-

02

Sep

-02

Feb

-03

Ju

l-03

De

c-0

3

May-0

4

Oct-

04

Mar-

05

Aug

-05

Ja

n-0

6

Ju

n-0

6

No

v-0

6

Apr-

07

Sep

-07

Feb

-08

Ju

l-08

De

c-0

8

May-0

9

Oct-

09

Mar-

10

Aug

-10

Ja

n-1

1

Ju

n-1

1

No

v-1

1

Apr-

12

Sep

-12

Feb

-13

Ju

l-13

De

c-1

3

May-1

4

Oct-

14

Mar-

15

Am

ou

nt

(Rs.

lakh

s)

Growth of Rs. 1 lakh invested in April 1997 Reliance Growth Fund

Reliance VisionFund

CNX Nifty Index

CRISIL - AMFI Equity Fund

Performance Index

Reliance Equity Composite Index

6

Rolling return6 analysis

Rolling return (%) (since Apr 1, 1997)

Reliance Equity Composite Index CNX Nifty Index CRISIL - AMFI Equity Fund

Index

Average returns

Best returns

Worst returns

Average returns

Best returns

Worst returns

Average returns

Best returns

Worst returns

3 years 25.74 87.51 -8.17 13.30 58.78 -16.38 22.30 75.80 -22.04

5 years 27.33 67.76 1.28 14.06 44.52 -5.65 22.06 55.13 0.76

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 27.33% for RECI compared with 14.06% for the CNX Nifty and 22.06% for the equity category.

Risk analysis

Risk measures (%) Reliance Equity Composite Index

CNX Nifty Index

CRISIL – AMFI Equity Fund Performance Index (since Apr 01, 1997)

Maximum Drawdown -63.01 -59.86 -66.02

Volatility 27.57 30.71 27.81

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

and the equity category.

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

7

Fund analysis

■ In terms of equity AUM, the fund house is ranked third based on the industry‟s equity AUM as on March 2015.

The AMC is currently managing 267 open-ended mutual funds across equity-oriented categories.

* Three years average exposure as on month ended March 2015

■ Out of ten funds considered for analysis, from broad equity categories of large-caps, small & mid-caps, diversified

and ELSS, three funds primarily have a large cap bias, five have a diversified portfolio and two have small &

midcap bias. Of these, Reliance Equity Opportunities Fund and Reliance Growth Fund are the largest funds in

terms of AUM.

■ Reliance Equity Opportunities Fund, which is the largest fund, and Reliance Regular Savings Fund - Equity have

more diversified portfolios with 53 and 51 stocks, respectively vis-à-vis diversified funds in CRISIL Mutual Fund

Ranking with 46 stocks, held on an average over the past 3 years.

■ Reliance Tax Saver Fund, which is ranked in the ELSS category in CRISIL mutual fund rankings, has a small and

midcap bias, which is evident from its exposure to large-cap stocks8 (36.7%).

■ Among the smaller funds, there is a diversity in positioning of funds with Reliance focused large cap and Reliance

top 200 having a large cap bias (87.76% and 79.05% exposure to large cap stocks respectively) whereas

Reliance Mid & Small Cap and Reliance Small Cap have a minimal exposure to large cap stocks (16.35% and

3.96% respectively).

7 Apart from the 10 funds considered for analysis, it includes nine index funds, four sector funds, two overseas funds and one arbitrage fund

8 Top 100 stocks based on daily average market capitalisation on the National Stock Exchange

Reliance Equity Opportunities

Reliance Growth

Reliance Quant Plus

Reliance Regular Savings - Equity

Reliance Tax Saver

Reliance Top 200

Reliance Vision

Reliance Focused Large Cap

Reliance Mid & Small Cap

Reliance Small Cap 0%

20%

40%

60%

80%

100%

0 2000 4000 6000 8000 10000 12000 14000

Larg

e C

ap

exp

osu

re*

Quarterly Average AUM (Rs. cr)

Fund Positioning

8

Portfolio analysis

■ The ten funds, considered for analysis, had exposure to 372 stocks across 38 industries in the last three years

ended March 31, 2015. The current holding is 208 stocks, with highest exposure to banking sector (14.37%

exposure across 19 stocks) and highest number of stocks in consumer non-durable sector (27 stocks with 3.38%

exposure).

■ 37 out of 79 stocks which were part of the portfolio consistently over the last three years offered more than 25%

annualized returns. CCL Products (India) offered the highest annualized returns of 136.54% followed by Eicher

Motors‟ 99.84% and Indoco Remedies‟ 88.79%. However, 15 stocks posted negative returns: Innoventive

Industries fell 52.23% followed by Jindal Saw 27.77% and Orient Paper & Industries 26.93%.

■ Top 10 holdings account for 29.74% of the overall equity portfolio in the last three years ended March 31, 2015.

All of them are large-cap stocks viz. ICICI Bank, Infosys, SBI, Larsen & Toubro, HCL Technologies, Maruti

Suzuki India, HDFC Bank, Bharat Forge, Cummins India and Divi's Laboratories, based on daily average market

capitalization on the National Stock Exchange over the past 9 months ended March 2015.

■ Six out of top 10 stocks offered more than 25% annualized returns in the last three years i.e. Divi's Laboratories

(32.59%), HCL Technologies (59.50%), Maruti Suzuki India (39.89%) and Bharat Forge (58.60%). And only two

stocks -- Infosys (15.68%) and SBI (8.40%) -- returned less than the CNX 500‟s 18.24% and CNX Nifty‟s 17.03%.

■ Top 5 sectors account for 54.06% of the equity portfolio. Banking sector tops the chart with 14.37% exposure

followed by Pharmaceuticals (11.32%), Software (11.11%), Industrial Capital Goods (10.86%) and Auto (6.39%).

■ Over-exposure to Pharmaceuticals (+5.09%) compared with their weights in CNX 500 helped the fund generate

higher returns. The sector represented by the CNX Pharma Index has generated 36.62% annualized returns

compared with the CNX 500 Index‟s 18.24% in the last three years. Similarly, Industrial Capital Goods &

Industrial products (combined over-exposure of 10.67% versus CNX 500) represented by S&P BSE Capital

Goods Index have contributed positively to the fund returns with an annualized return of 19.92% in the last three

years.

Sector Over-/Under-

exposure versus CNX 500

Sector returns

CNX 500 returns

Differential returns versus

CNX 500 Contribution

Pharmaceuticals 5.09% 36.62% 18.24% 18.39% Positive

Industrial Capital Goods & Industrial Products

10.67% 19.92% 18.24% 1.68% Positive

Petroleum Products -2.66% 4.81% 18.24% -13.42% Positive

Media & Entertainment 2.10% 21.11% 18.24% 2.87% Positive

Banks & Finance -7.38% 22.13% 18.24% 3.90% Negative

Software -0.74% 22.86% 18.24% 4.62% Negative

Auto -0.13% 27.02% 18.24% 8.79% Negative

Consumer Non-Durables -8.33% 20.27% 18.24% 2.04% Negative

* Green colour indicates positive contribution and red colour indicates negative contribution. All returns are annualized for the three years ended March 2015

■ As seen in the table above, under-exposure to petroleum products (-2.66%) compared with its weight in the CNX

500 has helped the fund protect downside. The sector, represented by the S&P BSE Oil & Gas Index, generated

a paltry 4.81% annualized returns against the CNX 500 Index‟s 18.24% in the last three years.

9

Summary

■ RECI has outperformed the CNX Nifty and the CRISIL- AMFI Equity Fund Performance Index, a representative of

equity mutual funds in the industry, across timeframes up to March 31, 2015.

■ In the recent three-year period, RECI gave 25.77% returns versus the CNX Nifty‟s 17.03% and the equity

category‟s 22.52%. Over a ten-year period, RECI generated 19.86% compared with CNX Nifty‟s 15.34% and the

equity category‟s 18.48%. Over 15 years, the outperformance is higher with RECI generating 22.04% returns

compared to CNX Nifty (12.10%) and the equity category (15.84%). Since inception, RECI has grown over 52

times.

■ Almost 65% of the exposure of the consistently held stocks over the past three years have outperformed Nifty‟s

17.03% annualised return during the same period.

■ RECI has been less volatile than both CNX Nifty and the equity category.

■ 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 27.33% and

22.06%, respectively.

■ RECI has generated superior returns in a rising-market scenario. Except for 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. 30.24 lakh yielding

annualised returns of 17.60%. A similar investment in CNX Nifty would have amounted to Rs. 22.98 lakh and

yielded 12.48%. Also, over longer timeframes, RECI has posted returns higher than CNX Nifty and the equity

category thereby underscoring the superior performance of SIP.

10

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Last updated: August, 2014

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