Alternative equity funds, which manages high networth investors’ money, has outperformed most of the large- and mid-cap equity mutual fund (MF) schemes in the last 12 months ended November and benchmark Nifty 50 TRI.

The category-III alternative equity funds uses diverse and complex trading strategies with high leverage including through investment in listed or unlisted derivatives.

Among category-III long-short alternative investment funds (AIFs), Nuvama’s (formerly Edelweiss Wealth Management) EDGE fund topped the table with return of 17 per cent, followed by Whitespace Alpha – Equity Plus and Altacura AI Absolute Return fund have given return of 15 per cent and 14 per cent, while Tata Equity Plus Absolute Returns was at about 12 per cent. Nifty 50 TRI benchmark grew 12 per cent, as per PMS Bazaar data.

Challenging times

The performance of AIF is significant considering that when 75 per cent of the large-cap MFs have underperformed the benchmark. In the last 12 months, large-cap MFs across all MFs gave a return of 8 per cent, whereas large- and mid-cap combos, flexi-caps, balanced funds gave return in the range of 1 per cent to 4 per cent.

However, some of outperformers in large-caps were HDFC Top-100 - 16 per cent, Nippon India Large Cap - 17 per cent, HDFC Flexi Cap - 14 per cent, HDFC Balanced Advantage - 13 per cent and ICICI Pru Blue Chip - 12 per cent.

With SEBI recently tightening AIF norms, it has to be seen whether AIF will be able to deliver superior returns in the coming years.

Vaibhav Agrawal, AIF (Fund Manager), Motilal Oswal AMC, said in the last 12 months ended November, equity AUM of MF increased 17 per cent to ₹15.6-lakh crore, as per AMFI data. Assets of AIF increased 13 per cent to ₹6.9-lakh crore, as per the latest SEBI data upto June.

Maintaining the same run-rate in the second half of this year, the overall growth can be about 25 per cent in this year, he added.

Growth outlook

A recent Crisil report highlights that the AIF category is expected to grow at a 32 per cent CAGR between CY22 and CY27 against 50 per cent between CY17 and CY22.

MFs, on the other hand, is expected to grow at 19 per cent CAGR between CY22 and CY27 against 16 per cent between CY17 and CY22.

Ajay Vora, Head - Equities, Nuvama Asset Management, said the EDGE fund was initiated to address the challenge of quickly-eroding investor wealth due to the elevated instability of the markets in the past. Over the last one year, the fund has outperformed Nifty and other major indices by five per cent and when compared with equity offerings such as large-cap MFs, the outperformance increased to over 9 per cent, he said.

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