Mirae Asset India Opportunities: A rising star in equity mutual funds

At the close of trading today, the Indian equity markets has broken all records and reached its all time high, on the back of strong FII buying. The Sensex closed at 21919 and the Nifty at 6526. However, the journey to the top in the last five years has not been smooth. In the last five years Mirae Asset India Opportunities fund has established itself as a rising star, with one of the best performance amongst equity funds. Launched only in 2008, this diversified equity fund has outperformed all its peers and delivered excellent returns, in what has been a very difficult phase for equity markets. CRISIL ranks this fund as a good performer and Morningstar has a 5 star rating for this fund.

See the chart below, for the comparison of trailing annualized returns over one, two, three and five, between Mirae Asset India Opportunities fund (Growth Plan), Diversified Equity category and the benchmark index BSE 100. Returns are based on Mar 6 NAVs.

Mirae Asset India Opportunities – Fund Overview

Though the fund is just about 6 years old, it has managed to impress the industry with its strong performance during this period. This fund has done well in the all the years since its inception, particularly during bull market rallies. See chart below for annual returns of Mirae Asset India Opportunities fund since its inception.

As such this fund is suitable for investors looking for high capital appreciation over a long term and is also suitable for long term investment objectives like retirement planning, children’s education etc. The scheme was launched in Mar 2008, and an AUM base of over Rs 340 crores. The expense ratio of the fund is 2.38%. As an asset management company Mirae is relatively new to India, but has established itself as one the largest asset management company in the Asia Pacific region over the last 15 years. The fund managers of this scheme are Neelesh Surana and Gopal Agarwal, since inception. The scheme is open both for growth and dividend plans. The current NAV (as on Mar 6 2014) is 21.1 for the growth plan and 12.8 for the dividend plan.

Portfolio Construction

The fund has a large cap bias with a high growth focus. Its portfolio comprises of about 50 large and mid cap stocks, with an overweight on the BFSI sector. Among other sectors, the portfolio has substantial exposure also to IT, Healthcare, Energy and FMCG sectors. The sector composition gives the portfolio a good balance between high beta cyclical sectors and defensives. In terms of company concentration, the portfolio is very well diversified with its top 5 holdings, Infosys, ICICI Bank, ITC, HDFC Bank and HDFC accounting for only about 29% of the total portfolio value.

Risk & Return

From a risk perspective, the volatility of the fund is on the higher side. The annualized standard deviations of monthly returns of Mirae Asset India Opportunities fund for three and five year periods are 16% and 24% respectively, which is on the higher side relative to the diversified equity category. While the high volatility is a watch out for the fund from a risk perspective, the risk adjusted return is very attractive. On a risk adjusted basis, as measured by Sharpe Ratio, the fund has outperformed the diversified category. Sharpe ratio is defined as the ratio of excess return (i.e. difference of return of the fund and risk free return from Government securities) and annualized standard deviation of returns. Higher the Sharpe ratio better is the risk adjusted performance of the fund. See charts below for comparison of volatilities and Sharpe ratios between Mirae Asset India Opportunities fund and the diversified equity funds category

Comparison with Peer Set

A comparison of annualized returns of Mirae Asset India Opportunities fund versus its peer set over various time periods shows why this fund is considered a rising star in the industry. See chart below for comparison of annualized returns over one, three and five year periods. NAVs as on Mar 6 2014.

Dividend Payout Track Record

Though Mirae Asset India Opportunities fund has been in existence only for about six years, it has a good dividend payout track record. Since inception in 2008 the fund has paid dividends every year, except for 2011, when the equity market saw a sharp downturn.

SIP Returns

The chart below shows returns as on Feb 25 2014 (NAVof 20.1) of Rs 5000 monthly SIP in the Mirae Asset India Opportunities fund Growth Plan, for respective years since inception. The SIP date has been assumed to first working day of the month. The amounts are shown in Rs lakhs.

The chart above shows that a monthly SIP of Rs 5000 started on June, 2008 in the fund would have grown to over Rs 5.8 lakhs, while the investor would have invested in a little less than Rs 3.5 lakhs. An investment of Rs 1 lakh in the NFO of the fund will have more than doubled Rs 2.1 lakhs in Mar 2014. This implies a tax free annual compounded return of 13.7%

The Mirae Asset India Opportunities Fund has delivered 5 years of strong performance and is considered a rising star in Indian mutual funds. However, we need to see if the fund can continue to sustain its strong performance in the future. With equity markets showing definite signs of bullishness, the long term appreciation potential of the fund looks very positive. Investors with aggressive risk profiles, who are looking for long term capital appreciation or regular dividends, can consider investing in the scheme through the systematic investment plan (SIP) or lump sum route with a long time horizon. Investors should consult with their financial advisors, if this scheme is suitable for their financial planning objectives