Equity schemes disappoint MF investors
Staying put for the long-haul will mitigate volatility risks, say experts
Mutual
fund (MF) investors’ appetite for equity schemes sharply diminished during Samvat 2075. Between October 2018 and September 2019, equity schemes garnered ~84,193 crore of inflows, which was about 40 per cent less than the previous Samvat.
According to industry experts, investors’ cut-back on equity schemes was caused by disappointment in midand small-cap funds, in which they had expected robust returns.
“Mid- and small-cap funds had attracted a significant chunk of investor flows, given they were expecting 30-40 per cent returns on these investments,” observed Kaustubh Belapurkar, director (fund research), Morningstar India.
However, both categories fell short of expectations. Mid-cap funds delivered returns of 4.4 per cent in Samvat 2075, while small-cap funds clocked negative returns of 3 per cent, shows data from Value Research.
Besides mid- and small-cap funds, large-cap schemes had a difficult time too. The mid-year study by S&P Indices Versus Active India Scorecard (SPIVA), showed that over 76 per cent of large-cap funds had underperformed their benchmark returns over a one-year period (as on June 28, 2019). The benchmark BSE100 gave returns of 9.8 per cent during the same period.
Even though mid- and small-cap funds underperformed in the recent year, fund managers believe this might be an opportune time to build positions in these schemes.
“For the next 6-12 months, investors may look at building up their positions. The divergence between the Nifty, and the mid- and small-cap indices is at historical extremes. Broader markets tend to outperform for 18-24 months after such extremes are reached,” said Pankaj Tibrewal, fund manager at Kotak Mutual Fund.
Analysts say the correction in the midand small-cap space has made valuations attractive. According to brokerages, the price-to-earnings multiple for mid-caps stands at a 13-15 per cent discount to largecap stocks.
However, fund managers and advisors say a broader market rally might still be some time away, and investors would need to stay invested over the long term for desirable returns.
Jinesh Gopani, head (research), Axis AMC, said: “While the broader market is likely to remain volatile, our focus will remain on companies with well-defined niches and strong moats. We believe opportunities have emerged in mid- and small-caps after the steep corrections.”
“Over the longer term, the impact of volatility on these investments will even out,” added an advisor.
Data show that mid- and small-cap funds have outperformed large-cap schemes over both five-year and 10-year durations.
Over a five-year period, mid- and small-cap funds have given annualised returns of 9.75 per cent and 9.39 per cent, respectively. At the same time, large-cap funds have given annualised returns of 8.7 per cent. Over a ten-year period, mid and small-cap funds have given annualised returns of 13.8 per cent and 12 per cent, respectively, while large-cap funds have clocked 9.8 per cent.