Reliance Top 200 Fund: Strong 5 year SIP performance from this top diversified equity mutual fund

Reliance Top 200 Fund delivered very strong Systematic Investment Plan returns over the last 5 years. If you started a monthly SIP of र 5,000 in the Reliance Top 200 Fund (Growth Option) five years back in November 2010, you would have made a profit of nearly र 170,000 on an cumulative investment of र 300,000 only, implying an SIP return of close 18% on a compounded annual basis. Morningstar has a 4 star rating for this fund. The chart below shows the trailing annualized returns of the fund versus the large cap equity mutual funds category.

Source: Advisorkhoj Research

We can see that fund has outperformed the large cap funds category across 1 year, 3 year and 5 year investment horizons.

Fund Overview

Reliance Top 200 Fund was launched in August 2007 and has nearly र 2,000 crores of Assets under Management (as of end of October 2015). The expense ratio of the fund is 2.48%. The fund has delivered strong outperformance since its inception. Rolling returns is the best measure of a fund’s performance in terms of consistency. Trailing returns have a recency bias and point to point returns are specific to the period in consideration. Rolling returns, on the other hand, measures the fund’s absolute and relative performance the timescale in question, without bias. The chart below shows the 3 year rolling returns of the Reliance Top 200 Fund since its inception. Rolling returns are the absolute returns of the scheme taken for a specified period on every day/week/month and taken till the last day of the duration. We have chosen 3 years as the rolling returns time period because it is always recommended that long term investors should hold equity funds for at least 3 years. In this chart we are showing returns on every day during the specified period and comparing it with the benchmark. The orange line shows the 3 year rolling returns of the Reliance Top 200 Fund (Growth Option) and the black line shows the 3 year rolling returns of the benchmark BSE 200 index. We can see that the fund has been to beat the benchmark very consistently from 2009 onwards. The fund has given more than 75% absolute 3 year returns (more than 20% on an annualized basis) since the middle of 2011.

Source: Advisorkhoj Research

The fund is managed by veteran fund managers Shailesh Raj Bhan and Ashwani Kumar.

Portfolio Construction

The Reliance Top 200 Fund has a bias for the large cap, growth oriented stocks. Large cap stocks comprise over 80% of the fund portfolio. In terms of sectoral composition, the fund also has a strong bias for cyclical sectors. Around 80% of the portfolio stocks in terms of value belong to cyclical sectors while about 20% of the portfolio is accounted for by defensive sectors like IT, Pharmaceuticals and FMCG. The fund is well diversified from the perspective of company concentration with the top 5 companies accounting for only 27% of the portfolio value.

Risk and Return

From a volatility perspective, the standard deviation of monthly returns of the Reliance Top 200 fund is slightly on the higher side relative to the large cap funds as a category. However, in terms of risk adjusted returns, as measured by Sharpe Ratio, it has clearly outperformed the large cap funds category.

The chart below shows the returns of र 5,000 invested monthly through Systematic Investment plan (SIP) route in the Reliance Top 200 Fund (growth option) since inception. The SIP date has been assumed to be the first working day of the month.

The chart above shows that a monthly SIP of र 5,000, started since the inception of Reliance Top 200 Fund (growth option) would have grown to over र 9.2 lacs by November 20 2015, while the investor would have invested in total less than र 5 lacs.

Conclusion

Reliance Top 200 Fund has completed over 8 years of strong performance. This fund is suitable for investors looking for high capital appreciation over a long time horizon, for long term financial objectives, such as retirement planning, children’s education etc. Investors can consider investing in the scheme through the systematic investment plan (SIP) or lump sum mode with a long time horizon. Investors should consult with their financial advisors, if Reliance Top 200 Fund is suitable for their investment portfolio.