Axis Mutual Fund Investors Should Adopt Scheme-Specific Approach

Investors in Axis Mutual Fund have seen the fund house being in the news in recent times for all the wrong reasons.

The front-running controversy involving officials of the fund house and the constant news about the inquiry into the entire episode by the regulatory authorities brings forth the logical question whether they should continue their investments in the fund house or switch their money elsewhere.

Investors select an equity-oriented fund for a longer time frame goal. The investment, often done through a Systematic Investment Plan or SIP, continues for several years.

Taking this into consideration, the first thing that the investor should do is to avoid taking hasty decisions. The immediate impulse is to take some action based on what is happening around them, but this might not be the right reason for taking a particular step.

The reason has to be such that it affects the investment and not some fear which might not play out at all. In the case of Axis Mutual Fund, too, it should not be fear that guides the investment decision.

This brings us to the factor that the investor needs to consider when they decide on whether to continue with an existing investment. This would be the performance of the fund that has been selected and whether this is meeting the expectations of the investor for the goal that it was supposed to achieve.

This will involve looking at the individual funds of Axis Mutual Fund, where specifically the investors’ money is, to see how they are doing and whether there is something that merits action.

The mid cap and the small cap space is where selection of fund holdings matter a lot, in terms of the alpha or outperformance that will be generated by the scheme.

The one-year and three-year performance of Axis Small Cap is 8.3% and 30.3% per annum respectively (as on Aug. 3, 2022). This stands up well as far as a comparison to the benchmark as well as other funds in the same category is concerned.

Axis Growth Opportunities Fund, which is the large and mid cap category scheme from the fund house, has had a tough last one year but is still holding up well on the three-year performance front.

Axis Midcap Fund, too, has seen the performance slip in the last one and three years as compared to its benchmark as well as peer funds, though in absolute terms it still looks impressive. These funds need to be closely tracked in the coming months to see the kind of changes that are done in the portfolio as well as the performance that emerges before a definite step is taken.

The real worry is actually for a couple of schemes that were the stars in the stellar run by the fund house in the last five years. Investors have poured large amounts of money in these schemes, too, during this period.

One of them is the Axis Bluechip Fund, which is a large-cap fund, and after a super run, the fund has hit a rough patch. At the end of June 2022, the fund had Rs 32,322 crore of assets under management.

The fund has seen a long period of underperformance, not only against its benchmark but also against its peers which is evident in the one and three-year returns. This has led to large amounts of frustration among investors because it is increasingly becoming difficult for large-cap funds to beat their benchmark and in addition, a weak peer performance adds to the pain.

The situation is not much different for Axis Long Term Equity Fund, which is an equity-linked savings scheme or ELSS that provides a deduction under Section 80C of the Income Tax Act. The fund manages a massive Rs 27,628 crore of assets under management at the end of June 2022.

Unlike a normal open-ended fund, investors need to be extra vigilant in such funds because the exit for investors is restricted, since there is a three-year lock-in after investment.

In many cases, investors might not be able to access their existing funds till the lock-in is over, but they need to see whether they should make further investments. The one-year fund performance, as on Aug. 3, 2022, is negative which is making it an underperformer both against its benchmark and peers and this has been a drag on the three-year performance too.

On the whole, the approach of investors should be to avoid taking a quick decision based on the news that keeps appearing at regular intervals, which might reignite concerns about their investment.

The main thing is to watch the performance and the portfolio of the funds very closely, and only in those funds where there is a consistent underperformance, they might want to reconsider their investment or change it to some other fund that is more consistent.

(The writer is founder, Moneyeduschool)